CH. 12 Questions

"A measure of profitability computed by dividing the average annual operating income by the amount of the investment" is best described by which of the following terms?

Accounting Rate of Return

The NPV and IRR do/dont recognize the time value of money

DO

The payback period and the ARR do/don't recognize the time value of money

DONT

Which of the following is used as the equation's denominator when computing the accounting rate of return for a capital asset?

Initial investment amount

The time value of money is explained by which of the following

Invested money earns income over time

The principal amount, the interest rate, and the number of periods are all factors needed to calculate the time value of money.

TRUE

A major criticism of the payback method is that it focuses...

only on time, not profitability

Compound interest means that interest is calculated on

principal AND all interest earned to date