Accounting rate of return method or arr, Finance Basics

Assignment Help:

Accounting Rate of Return Method or ARR

This method utilizes accounting profits from financial status to assess the viability of investment proposal via diving the average income after tax via average investment.  The investment would be equivalent to the original investment in addition the salvage value divided with two or the initial investment divided with two or dividing the total of the investment book value after depreciating with the life of the project.  This method is known as also book value method or financial statement method.  The rate of return on asset method or adjusted rate of return method is given via:

ARR = ( Average income/ Average investment)    x 100 

or (Average income - Average depreciation)/Initial investment

Not like PBP, this method will ascertain the profitability of an investment and it will provide results that are consistent along with those given via return ratios.


Related Discussions:- Accounting rate of return method or arr

State the determinants of return, State the Determinants of Return T...

State the Determinants of Return Three major determinants of the rate of return expected by investor are: (i) Time preference risk-free real rate. (ii) Expected rate o

Illustrate role of credit unions in depository institutions, Illustrate the...

Illustrate the role of credit unions in depository institutions. Credit unions: Credit unions are non-profit institutions equally organised and owned through their member

Tarniwala and dealer in non-cleared securities, Tarniwala and Dealer in N...

Tarniwala and Dealer in Non-cleared Securities Tarniwala: He/she is a specialist or jobber in selected shares. He/she makes market i.e. provide continuity to dealings. They

Calculate the profit and segment of the organization, Food and Beverages ...

Food and Beverages Rooms, Restaurants and Other Services Other Income Total $ $ $ Sale

Calculate the incremental net present value, The following NPV's have been ...

The following NPV's have been calculated to determine if a compressor installation should be accelerated from Year 3 to Year 7. The compressor cost is $1,500,000.   a. C

Determine the required rate of return on the security, Elephant Company com...

Elephant Company common stock has a beta of 1.2. The risk-free rate is 6% and the expected market rate of return is 12%. Determine the required rate of return on the security.

High potential venture, High Potential Venture An organization begins w...

High Potential Venture An organization begins with the intent of growing quickly to annual sales of at least $30 to 50 million in 5 years. It also has the potential to have a f

Cost of redeemable debentures and preference shares, Cost of Redeemable Deb...

Cost of Redeemable Debentures and Preference Shares Redeemable fixed return securities have an exact maturity period.  The cost of those securities is called redemption yield

Financial leverage on a cost of equity, Please describe the effect of finan...

Please describe the effect of financial leverage on a cost of equity and firm's equity beta.

Yield to Maturity, A bondholder buys a bond maturing in two years for Rs. 1...

A bondholder buys a bond maturing in two years for Rs. 120 and earns Rs.15 per annum as interest. His YTM is ______ %.

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd