The average accounting rate of return (AAR): Select one: o a

The average accounting rate of return :-

Answer :- (b) is similar to return on asset ratio

Explanation :-

Average accounting rate of return is calculated by dividing average net income by average investment which is similar to ROA as ROA is calculated by dividing net income by total assets . So, we can say that Average accounting rate of return is similar to return on asset .

Explanation for rejection of other points :-

Average accounting rate of return is neither the best method for financially analyzing of mutually exclusive project nor the primary method for independent projects . So, option (a) and (c) are wrong .

Average accounting rate of return measure average net income as a percentage of average investment , not sales . So, option (d) is also wrong.

ARR method does not consider time value of money . It does not discounts the profits to be generated to present value . So, option (e) is also wrong .

So, the answer is (b) is similar to return on assets ratio.