Investment decisions - ARR

3 important questions on Investment decisions - ARR

What does the accounting rate of return do?

The ARR takes the average accounting operating profit that the investment will generate and expresses it as a percentage of the average investment made over the life of the project

What is the formula of the ARR?

ARR = Average annual operating profit / average investment to earn that profit x 100%

How can you find the average investment

Average investment = cost of machine + disposal value / 2

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