Which of the Following Is Not a "Con" of the Accounting

question 85

Multiple Choice

Which of the following is not a "con" of the Accounting Rate of Return method?

• A) The method makes no adjustment for the time value of money or project risk.
• B) The depreciation method used impacts both the numerator and denominator.
• C) It focuses on net income rather than a company's ability to generate cash.
• D) The choice of the hurdle rate is arbitrary.
• E) All of the above are cons of the Accounting Rate of Return method.

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Definitions:

Flotation Cost

The total costs incurred by a company in offering its securities to the public, including underwriting, legal, and registration fees.

Target Capital Structure

The mix of debt, equity, and other financing sources a company aims to use to finance its operations and growth.

WACC

Weighted Average Cost of Capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets.

Cost of Equity

Cost of equity is the return a company requires to decide if an investment meets capital return requirements and can be seen as the return on equity that shareholders expect for their investment risk.