List and briefly describe two strengths and two weaknesses of the accounting rate of return evaluation method

Accounting Aug 05, 2020

List and briefly describe two strengths and two weaknesses of the accounting rate of return evaluation method.

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Advantages

The method is easy to calculate and easy to understand.
It makes a clear picture about the profitability of the project
It it uses to measure the current performance of the project
It facilitates a comparison of new product project vidyut of cost reducing project and any other projects of competitive nature.
The method is based on accounting profit is measure the profitability of the investment

Disadvantages

It ignores the time value of money and cash flow from investment
Cannot appraise the project pay the installment of the investments have been made more than two times and in multiple parts
To calculate the rate of return only ARR method is not required

It does not consider the terminal value of the project

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