Final answer:
The capital budgeting technique that calculates the return based on the investment's impact on financial statements is the accounting rate of return (ARR). Unlike IRR, NPV, and payback period, ARR does not consider the time value of money. Option B
Step-by-step explanation:
The capital budgeting analytical technique that specifically calculates the rate of return based on the investment's impact on the financial statements is known as the accounting rate of return (ARR). This method looks at the expected increase in net income from the investment relative to the initial investment cost. ARR does not take the time value of money into account. In contrast:
The internal rate of return (IRR) is a discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.
The payback period method calculates how long it takes for the initial investment to be paid back from the cash inflows generated by the investment.
The net present value (NPV) method discounts all future cash flows back to their present value and subtracts the initial investment.
Understanding the actual rate of return, which is the total rate of return including capital gains and interest paid on an investment at the end of a time period, is crucial when comparing these different capital budgeting techniques. Option b