does not account for cash flow timing
the time value of money is the main concept of the discounted cash flow model which better determines the value of an investment as it seeks to determine the present value of future cash flows accounting rate of return vs required rate of returnthe arr is the annual percentage return from an investment based on its initial outlay the required rate of return rrr or the hurdle rate is the minimum return an investor would accept for an investment or project that compensates them for a given level of risk it is calculated using the dividend discount model which accounts for stock price changes or the capital asset pricing model which compares returns to the market the rrr can vary between investors as they each have a different tolerance for risk for example a risk averse investor requires a higher rate of return to compensate for any risk from the investment investors and businesses may use multiple financial metrics like arr and rrr to determine if an investment would be worthwhile based on risk tolerance 