Average Accounting Return. Concerning AAR:
a. Describe how the average accounting return is usually calculated and describe the information this measure provides about a sequence of cash flows. What is the AAR criterion decision rule?
b. What are the problems associated with using the AAR as a means of evaluating a project’s cash flows? What underlying feature of AAR is most troubling to you from a financial perspective? Does the AAR have any redeeming qualities?
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