Cost Accounting (15th Edition)

Published by Prentice Hall
ISBN 10: 0133428702
ISBN 13: 978-0-13342-870-4

Chapter 21 - Capital Budgeting and Cost Analysis - Assignment Material - Questions - Page 830: 21-7

Answer

The accrual accounting rate-of-return (AARR) method calculates the average annual income of a project divided by the investment using accrual accounting measures. Its strengths include simplicity, ease of understanding, and the consideration of profitability. However, it has weaknesses, such as ignoring the time value of money and not taking into account the actual cash flows of a project.

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