Evaluate the applicability of the ARR method in investment decision-making.
Understand the Problem
The question is asking us to evaluate the applicability of the ARR (Average Rate of Return) method in the context of investment decision-making, specifically regarding its suitability for different types of investments.
Answer
ARR is most suitable for short-term investments.
ARR is most suitable for short-term investments.
Answer for screen readers
ARR is most suitable for short-term investments.
More Information
ARR does not account for the time value of money, making it less suitable for long-term projects but useful for easier assessments in short-term investments.
Tips
A common mistake is to overlook the impact of ignoring the time value of money, leading to incorrect evaluation in long-term projects.
Sources
- What is Accounting Rate of Return (ARR): Formula and Examples - highradius.com
- Accounting Rate of Return: ARR: ARR: How to Use ... - FasterCapital - fastercapital.com
- What Is Accounting Rate of Return (ARR)? - Investopedia - investopedia.com
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