The Accrual Accounting Rate-Of-Return Method Has a Significant Weakness for Use

question 43

True/False

The accrual accounting rate-of-return method has a significant weakness for use in making capital budgeting decisions because it does NOT track cash flows and it ignores the time value of money.

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Definitions:

Transactional Motive

The transactional motive is the need to hold cash for the purpose of conducting day-to-day business operations, such as paying wages and suppliers.

Zero Balance Account

A zero balance account is a type of bank account that maintains a balance of zero dollars by automatically transferring funds from a master account in the exact amount of transactions clearing the account.

Line of Credit

A flexible loan from a bank or financial institution, where a borrower can access funds up to a specified limit at any time.