A weakness with the accounting rate of return is that it:
A)does not provide an indication of the risk of a project.
B)is based on accounting earnings rather than cash flows.
C)ignores the timing of earnings.
D)All of the given answers are weaknesses.

Question

Quizplus · Accepted Answer

All the given options are weaknesses of the accounting rate of return. It does not consider factors such as the time value of money, cash flows, and risk. Moreover, it relies on accounting earnings that may not reflect the true economic performance of a project. Therefore, it is not the most reliable measure for evaluating investment opportunities.

A Weakness with the Accounting Rate of Return Is That