How Does Depreciation Affect the Calculation of a Project's Accounting

question 28

Multiple Choice

How does depreciation affect the calculation of a project's accounting rate of return (ARR) ?

• A) Depreciation is deducted from the annual cash inflows.
• B) Depreciation is added to the annual cash inflows.
• C) Depreciation does not affect ARR.
• D) Depreciation is only deducted if the ARR is less than the minimum required rate of return.

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Definitions:

Total Cost

The complete expenditure incurred in the production of goods or services, including fixed and variable costs.

Output

The total amount of something produced by a person, machine, or industry.

Average Variable Cost

The total variable costs (costs that change with production levels) divided by the quantity of output produced.

Output

The total quantity of goods or services produced within a specific period by a firm or industry.