These rates of return methodologies are vital in terms of the measurement of financial performance, assessment of the risk and desirability of certain projects. Also the monitoring of a certain specific project performance. There are two vital rates of return concepts. The Economic rate of return and the Accounting rate of return. Both of these rates of returns play a vital role in terms of an investment appraisal .now, to measure the economic performance of an investment; we need to be aware of its Real rate of return of the finished project. Herein all Cash receipts are expressed in terms of monetary units which hold equal purchasing power. This theory is what provides base to the following value of a future performance. The present value of the expected cash flow of the project, discounted appropriately.
Differential analysis is considered an alternative to the traditional income statement format. Pricing decisions are made using the differential analysis methodology. If organizations apply differential analysis to pricing, then every price given for a product is considered as the alternative course of action. The fixed costs however will remain the same in between .The aim of all organizations in the process of selecting an appropriate price is where total future revenues will exceed total future costs.
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