Question

Examine the following statements:
i) Pay Back Period method measures the true profitability of a project.
ii) Capital Rationing and Capital Budgeting mean the same thing.
iii) Internal Rate of Return and Time Adjusted Rate of Return are the same thing.
iv) Accounting Rate of Return Method considers time value of money.

• A. (i), (ii) and (iii) are correct
• B. (ii) and (iii) are correct
• C. Only (iii) is correct
• D. All (i), (ii), (iii) and (iv) are false

Answer 1

Answer: (A)

(i), (ii) and (iii) are correct

The accounting rate of return, also known as simple or average rate of return, measures the amount of profit or return expected on an investment.

$ARR$ does not consider time value of money or cash flows which can be an integral part of maintaining a business.