In what ways are the Payback Period and Accounting Rate of Return methods of capital budgeting alike?
a) They both ignore time value of money.
b) They both focus on the time to recover the initial investment.
c) They both focus on GAAP.
d) They both measure the average profitability over the asset's life.
Answer is d) They both measure the average profitability over the asset's life. (The payback period indicates how long it will take to recover the cash investment used to acquire the asset. Accounting Rate of Return method is based on a single proposed asset acquisition, while the rate of return in financial accounting was based on the return generated by a company's total assets.)
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