Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

7. Receivables and Investments

Introduction to Investments in Securities

Financial Accounting

7. Receivables and Investments

Introduction to Investments in Securities

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Multiple Choice

Which capital budgeting method focuses on incremental operating income rather than cash flows?

Internal Rate of Return (IRR)

Accounting Rate of Return (ARR)

Net Present Value (NPV)

Payback Period

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Verified step by step guidance

Understand the concept of capital budgeting methods: Capital budgeting methods are techniques used to evaluate investment opportunities and decide whether a project is worth pursuing. Each method focuses on different financial metrics.

Review the Accounting Rate of Return (ARR): ARR is a capital budgeting method that evaluates the profitability of an investment based on incremental operating income rather than cash flows. It calculates the return as a percentage of the initial investment.

Compare ARR with other methods: Unlike ARR, methods like Internal Rate of Return (IRR), Net Present Value (NPV), and Payback Period focus on cash flows rather than operating income. ARR is unique in its focus on accounting-based metrics.

Understand the formula for ARR: ARR is calculated using the formula:

ARR = \frac{Average Accounting Profit}{Initial}

. This focuses on operating income derived from accounting records.

Conclude why ARR is the correct answer: Since ARR evaluates incremental operating income rather than cash flows, it is the capital budgeting method that aligns with the question's focus. Other methods prioritize cash flow analysis.