The correct answer is: Both 1 and 2.
Accounting rate of return (ARR) and internal rate of return (IRR) are both techniques for appraisal of investment proposals that are based on time value of money.
ARR is a profitability measure that calculates the average annual return on an investment. It is calculated by dividing the average annual net income from an investment by the initial investment.
IRR is a discount rate that makes the present value of the cash inflows from an investment equal to the present value of the cash outflows. It is the rate of return that an investment must earn in order to break even.
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. EPS is not based on time value of money, as it does not take into account the timing of cash flows.
Therefore, the only two techniques that are based on time value of money are ARR and IRR.