The Accounting Rate of Return Differs from Other Methods of Capital

question 124

Multiple Choice

The accounting rate of return differs from other methods of capital budgeting in that it

• A)does not focus on cash flows.
• B)uses an inflated discount rate.
• C)ignores the time value of money.
• D)None of these answer choices are correct.

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Definitions:

Floating Rate

An interest rate that changes over time as it is tied to an underlying benchmark or index, commonly used in loans and bonds.

Bond Indenture

A legal contract between a bond issuer and bondholders, detailing the terms and conditions under which a bond is issued, including the interest rate, maturity date, and covenants.

Protective Covenants

Legal stipulations in loan agreements that aim to preserve the value of the collateral and ensure borrowers uphold specific conditions.

Repayment Arrangements

Agreements between a lender and borrower detailing the terms for paying back a loan, including payment schedule and interest rates.