When Two or More Capital Investment Proposals Are Being Evaluated

question 17

True/False

When two or more capital investment proposals are being evaluated using the accounting rate-of-return method, the proposal that yields the highest ratio of net income to average cost of investment is selected.

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Definitions:

Discount Rate

The rate of interest applied to discount future cash flows back to their current value, commonly employed in evaluating investments and planning for capital expenditures.

Salvage Value

The approximated financial return of an asset at the termination of its usefulness.

Operating Costs

Expenses associated with the day-to-day functioning of a business, excluding the cost of goods sold.

Flat Fee

A pricing structure where a single fixed charge is applied for a service, irrespective of usage or time required.