Which of the following is not a limitation of using the accounting rate of return method for capital budgeting?A) The accounting rate of return method is based on accounting income, rather than cash flow.B) The accounting rate of return method is subject to potential manipulation based on accounting choices made by management (e.g., the method used to depreciate a capital asset).C) The accounting rate of return method does not incorporate time value of money.D) Net incomeâon which the accounting rate of return method is basedâis more objective than cash flow.

Option C is correct, The accounting rate of return (ARR) method does not incorporate the time value of money and is not a limitation of using the accounting rate of return method for capital budgeting.

ARR is a useful tool or method for selecting a long-term project or capital asset to invest in because it is one of the finest ways to estimate the prospective profitability of an investment.

ARR is commonly used to guide capital budgeting decisions. An ARR calculation, for instance, can assist in determining whether moving forward is the best course of action if your company wants to decide whether to proceed with a specific investment, whether it's a project or an acquisition.

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