Scribd Logo
Upload

Welcome to Scribd!

  • Accounting Rate of Return

    Uploaded by

    GolamMostafa
    7 views2 pages
    The document provides two examples of calculating the accounting rate of return (ARR) for capital investment projects. In the first example, a machine costing $420,000 increases annual revenue by $200,000 and expenses by $50,000 over 12 years with no salvage value, resulting in an ARR of 27.4%. In the second example, an initial $100,000 investment over 5 years yields $40,000 in years 1-2, $20,000 in years 3-4, $30,000 in year 5, and a $25,000 salvage value, for a total profit of $15,000 and an ARR of 4.8%.

    Original Description:

    Original Title

    Accounting-Rate-of-Return

    Copyright

    © © All Rights Reserved

    Available Formats

    XLSX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document
    The document provides two examples of calculating the accounting rate of return (ARR) for capital investment projects. In the first example, a machine costing $420,000 increases annual revenue by $200,000 and expenses by $50,000 over 12 years with no salvage value, resulting in an ARR of 27.4%. In the second example, an initial $100,000 investment over 5 years yields $40,000 in years 1-2, $20,000 in years 3-4, $30,000 in year 5, and a $25,000 salvage value, for a total profit of $15,000 and an ARR of 4.8%.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    7 views2 pages

    Accounting Rate of Return

    Uploaded by

    GolamMostafa
    The document provides two examples of calculating the accounting rate of return (ARR) for capital investment projects. In the first example, a machine costing $420,000 increases annual revenue by $200,000 and expenses by $50,000 over 12 years with no salvage value, resulting in an ARR of 27.4%. In the second example, an initial $100,000 investment over 5 years yields $40,000 in years 1-2, $20,000 in years 3-4, $30,000 in year 5, and a $25,000 salvage value, for a total profit of $15,000 and an ARR of 4.8%.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 2

    Accounting Rate of Return

    Example 1

    Machine Cost $ 420,000


    Increase in Annual Revenue $ 200,000
    Increase in Annual Expenses $ 50,000
    Useful Life (Years) 12
    Salvage Value $ 0

    Depreciation Expense (per year) $ 35,000


    Average Annual Profit $ 115,000

    Accounting Rate of Return (ARR) 27.4%


    Accounting Rate of Return

    Example 2

    Initial Investment $ 100,000


    Year of Investment 5
    Inflows Year 1 & 2 ($20,000 per year) $ 40,000
    Inflows Year 3 & 4 ($10,000 per year) $ 20,000
    Inflow Year 5 $ 30,000
    Salvage Value $ 25,000

    Depreciation $ 75,000

    Total Profit of Project $ 15,000


    Average Annual Profit $ 3,000

    Average Investment $ 62,500

    Accounting Rate of Return (ARR) 4.8%

    You might also like