Accounting Rate of Return
Internal Rate of Return
Profitability Index Method
Earnings Per Share
Answer is Right!
Answer is Wrong!
The correct answer is: B. Internal Rate of Return (IRR).
The IRR is a technique for evaluating capital budgeting projects that takes into account the time value of money. It is the discount rate that makes the net present value of a project equal to zero. A project is considered to be financially feasible if its IRR is greater than or equal to the company’s required rate of return.
The other options are not based on the time value of money.
- Accounting Rate of Return (ARR) is a profitability measure that calculates the average annual return on a project based on its net income and initial investment. It does not take into account the time value of money.
- Profitability Index Method (PIM) is a capital budgeting technique that compares the present value of a project’s future cash flows to its initial investment. It does not take into account the time value of money.
- Earnings Per Share (EPS) is a measure of a company’s profitability that is calculated by dividing its net income by the number of shares outstanding. It does not take into account the time value of money.