What are the limitations of accounting rate of return?
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Answer:
The AAR is good capital budgeting tool because managers can compare it to objective benchmarks. Yet one limitation is that ARR uses profit rather than cashflows, and it does not account for the time value of money (TVM) For more information on the accounting rate of return (AAR) please visit: http://www.drtaccounting.com/2008/03/calculate-average-accounting-return.html
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