Pay back method
Accounting rate
Discounted cash flow
Present value method
Answer is Right!
Answer is Wrong!
The correct answer is: B. Accounting rate of return
Depreciation is a non-cash expense that is used to allocate the cost of an asset over its useful life. It is included in costs in the accounting rate of return method, which is a method of calculating the profitability of an investment by dividing the annual net income by the average investment.
The accounting rate of return method is a simple and straightforward method of calculating profitability. However, it does not take into account the time value of money, which is the concept that money is worth more today than it will be in the future. This means that the accounting rate of return method may overstate the profitability of an investment.
The other options are incorrect because:
- The payback method is a method of evaluating an investment by calculating the number of years it takes to recover the initial investment. Depreciation is not included in the payback method.
- The discounted cash flow method is a method of evaluating an investment by calculating the present value of the future cash flows. Depreciation is included in the discounted cash flow method.
- The present value method is a method of calculating the present value of a future cash flow. Depreciation is not included in the present value method.