Important Points for IC 89 - Management Accounting Exam
Page 32 Of 54
Go to:
Under Rate of Return on Original Investment method rate of return is determined on the figures or data for income and investment derived from accounting statements. Management selects and accepts the project with rate of return equal to pre-determined cut off rate of return.
Under this method rate of return is determined on the figures or data for income and investment derived from accounting statements. Management selects and accepts the project with average rate of return equal to pre-determined cut off rate of return.
Discounted Cash Flow(DCF) method uses the Time Value of Money principle recognising the fact that the use of money involves cost and the money in hand is worth more than the money to be received later.
Net Present Value rules say, "If the net present is positive, the project is acceptable and if negative, it is avoidable". A project with higher NPV is preferred wher there are alternatives available.
Under Modified Internal Rate of Return method, earlier cash flows are reinvested at firms rate of return arriving at terminal value.
MODELEXAM® 
www.realsoftinfoplan.com