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Question

Which of the following is not a discounted cash flow methods for evaluating capital investment proposals:

A Net Present Value Method Correct Answer Incorrect Answer
B Average Accounting Rate of Return Correct Answer Incorrect Answer
C Internal Rate of Return Method Correct Answer Incorrect Answer
D Profitability Index or Benefit Cost (B/C) Ratio Method. Correct Answer Incorrect Answer
E All are discounted cash flow methods. Correct Answer Incorrect Answer

Solution

The average return on investment method ignores the time value of funds. Consideration to distribution of earnings over time is important. It is to be accepted that current income is more valuable than income received at a later date.

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