The Average Accounting Return

question 21

Multiple Choice

The average accounting return:

• A) Reflects the projected net effect of the cash flows from a project on the overall firm.
• B) Is comparable to the return on assets and thus provides a similar measure of performance.
• C) Reflects the anticipated net impact of a project on the shareholders of the firm.
• D) Rule, when applied, guarantees that only projects that increase shareholder wealth will be accepted.
• E) Ignores all income produced by a project after an arbitrarily assigned cutoff point.

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Definitions:

Variance

A gauge for the extent of dispersion in a collection of data, derived by the average of squared differences relative to the mean.

Sample Mean

The average of all the data points in a sample set from a population.

Squared Deviations

The squares of the differences between each value in a set and the mean of the set, used in various statistical computations including variance.

Standard Deviation

An indicator that evaluates the degree of scatter or inconsistency in a dataset in relation to its mean.