BUISENESS MANAGEMENT
FINANCIAL MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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easy comparisons
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money
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profit
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ignores timing of cash inflow
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Detailed explanation-1: -The ARR is widely used to provide a rough guide to how attractive an investment is. The main advantage is that it is easy to understand. The higher the ARR, the more attractive the investment is.
Detailed explanation-2: -The key advantage of ARR is that it is easy to compute and understand. The main disadvantage of ARR is that it disregards the time factor in terms of time value of money or risks for long term investments. The ARR is built on evaluation of profits, and it can be easily manipulated with changes in depreciation methods.
Detailed explanation-3: -The ARR formula divides an asset’s average revenue by the company’s initial investment to derive the ratio or return that one may expect over the lifetime of an asset or project. ARR does not consider the time value of money or cash flows, which can be an integral part of maintaining a business.