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:

Overallocated

A condition where resources are distributed or used in excess of what is optimal or sustainable, leading to inefficiency and potential scarcity.

Underallocated

A situation where resources are not being used in the most efficient way, often leading to missed opportunities in sectors or markets.

Economic Profit

The total revenue of a business minus both the explicit and implicit costs, providing a more complete picture of a company's financial health.

Demand Schedule

A table that shows the quantity of a good or service that consumers are willing and able to purchase at various prices.