Which One of the Following Statements Is Correct Concerning the Average

Multiple Choice

Which one of the following statements is correct concerning the average accounting return (AAR) ?

A) The average book value used in the AAR formula will always equal one-half of the initial investment as long as straight-line depreciation over the life of the project is used.
B) The average net income is the same as the total cash flows from the project minus the initial cash outflow to start the project.
C) The AAR is similar to the profitability index in that both are based on accounting values rather than financial cash flows.
D) Under the AAR rule, a project should be accepted if the targeted AAR is greater than the project's AAR.
E) The AAR is a true financial rate of return, which is relatively easy to compute.