- CFA Exams
- CFA Exam: Level I 2021
- Study Session 10. Corporate Finance (1)
- Reading 32. Capital Budgeting
- Subject 3. Investment Decision Criteria
CFA Practice Question
What are the advantages of the average accounting rate of return method?
II. It considers cash flows, not economic income.
III. It considers the time value of money.
IV. Any sunk costs are excluded from the rate calculation.
I. It is easy to understand and simple to use.
II. It considers cash flows, not economic income.
III. It considers the time value of money.
IV. Any sunk costs are excluded from the rate calculation.
Correct Answer: I only
User Contributed Comments 4
| User | Comment |
|---|---|
| amamed213 | why IV is not Ok ? |
| Renaud1807 | We are asking about the advantages... |
| johntan1979 | Check the formula... which part in the formula shows sunk costs are excluded? |
| khalifa92 | AAR has NI which includes depreciation and other sunk costs |