A division manager was considering a project that required a significant initial

Question

A division manager was considering a project that required a significant initial investment. If accepted, the project could have a negative impact on certain financial ratios that the firm was required to maintain to satisfy debt contracts. To ensure that the ratios would not be adversely affected by the investment, the manager would use which of the following capital investment models?

A. Net Present Value

B. Internal Rate of Return

C. Payback Period

D. Accounting Rate of Return

E. None of the above choices are correct

Explanation / Answer

Accounting Rate of Return should be used to ensure that the ratios would not be adversely affected by the investment. Option D is correct

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