Question
Which of the following are advantage(s) of AAR?
Multiple select question.
Has an objective benchmark
Relies on cash flows, rather than accounting values.
Is easy to compute.
Incorporates time value of money
Needed information is usually available.
Multiple select question.
Has an objective benchmark
Relies on cash flows, rather than accounting values.
Is easy to compute.
Incorporates time value of money
Needed information is usually available.
Answers
GPT-4o mini
The advantages of AAR (Average Accounting Return) include the following:
1. **Has an objective benchmark** - AAR allows comparison against a set benchmark, which can help in decision-making.
2. **Is easy to compute** - AAR is relatively straightforward to calculate, making it user-friendly for evaluation.
3. **Needed information is usually available** - The data required for calculating AAR is typically readily available, making it accessible for organizations.
However, AAR does not rely on cash flows (so that option is incorrect), and it does not incorporate the time value of money (which is a limitation of AAR). Instead, methods like Net Present Value (NPV) or Internal Rate of Return (IRR) would be used to account for the time value of money.
So the correct selections regarding advantages of AAR are:
- Has an objective benchmark
- Is easy to compute
- Needed information is usually available
1. **Has an objective benchmark** - AAR allows comparison against a set benchmark, which can help in decision-making.
2. **Is easy to compute** - AAR is relatively straightforward to calculate, making it user-friendly for evaluation.
3. **Needed information is usually available** - The data required for calculating AAR is typically readily available, making it accessible for organizations.
However, AAR does not rely on cash flows (so that option is incorrect), and it does not incorporate the time value of money (which is a limitation of AAR). Instead, methods like Net Present Value (NPV) or Internal Rate of Return (IRR) would be used to account for the time value of money.
So the correct selections regarding advantages of AAR are:
- Has an objective benchmark
- Is easy to compute
- Needed information is usually available