All of the Following Statements About the Annual Rate of Return

question 91

Multiple Choice

All of the following statements about the annual rate of return method are correct except that it

• A)indicates the profitability of a capital expenditure.
• B)ignores the salvage value of an investment.
• C)does not consider the time value of money.
• D)compares the annual rate of return to management's minimum rate of return.

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Definitions:

Precautionary Cash Balances

Precautionary cash balances refer to money held by both businesses and individuals to meet unexpected expenses or financial emergencies.

Unexpected Expenditures

Expenses that were not planned or budgeted for, often requiring immediate payment.

Risk-Averse

A description of an investor or decision-maker who prefers to minimize uncertainty or potential loss, favoring safer over riskier options.

Financial Intermediary

An institution that acts as a middleman between savers and borrowers, including banks, investment companies, and insurance companies.