Questions: Question 12 Other favorites Match these methods of computing return on investment to the formula used to compute it IRR NPV Computed by looking at the return on all cash flows and comparing them to the company's required return on pr Computed by looking at all cash flows and computing the effect of those cash flows AAR Reviewing and computing the number of periods it takes to recover the amount of the initial investment Looking at the return calculated by computing the net cash flows using generally accepted accounting principles Payback period

To match the methods of computing return on investment to their respective formulas or descriptions, let's analyze each method:

1. IRR (Internal Rate of Return):

   • The IRR is computed by looking at the return on all cash flows and comparing them to the company's required return. It is the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.

2. NPV (Net Present Value):

   • NPV is computed by looking at all cash flows and computing the effect of those cash flows. It is the sum of the present values of incoming and outgoing cash flows over a period of time.

3. AAR (Average Accounting Return):

   • AAR involves looking at the return calculated by computing the net cash flows using generally accepted accounting principles. It is the average annual profit divided by the initial investment.

4. Payback Period:

   • The payback period is determined by reviewing and computing the number of periods it takes to recover the amount of the initial investment. It is the time it takes for the cash inflows from a capital investment project to equal the cash outflows.

Now, let's match these methods to the descriptions provided:

• IRR: Computed by looking at the return on all cash flows and comparing them to the company's required return.
• NPV: Computed by looking at all cash flows and computing the effect of those cash flows.
• AAR: Looking at the return calculated by computing the net cash flows using generally accepted accounting principles.
• Payback Period: Reviewing and computing the number of periods it takes to recover the amount of the initial investment.

In summary, the matches are:

• IRR: Computed by looking at the return on all cash flows and comparing them to the company's required return.
• NPV: Computed by looking at all cash flows and computing the effect of those cash flows.
• AAR: Looking at the return calculated by computing the net cash flows using generally accepted accounting principles.
• Payback Period: Reviewing and computing the number of periods it takes to recover the amount of the initial investment.