ARR: Accounting Rate of Return (ARR) is the rate of return earned on the investment made in a project. ARR is calculated by dividing the Average Accounting profits by Average Investment. The formula to calculate ARR is as follows: A R R = A v e r a g e A c c o u n t i n g p r o f i t s A v e r a g e I n v e s t m e n t Payback Period: Payback period is the period in which the project recovers its initial cost of the investment. It can be calculated by dividing the initial investment by the annual cash inflow from the project. To Indicate: If the 100% average rate of return is equal to one year payback

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Chapter 15, Problem 5CDQ

To determine

Concept Introduction:

ARR:

Accounting Rate of Return (ARR) is the rate of return earned on the investment made in a project. ARR is calculated by dividing the Average Accounting profits by Average Investment.

The formula to calculate ARR is as follows:

ARR= Average Accounting profitsAverage Investment

Payback Period:

Payback period is the period in which the project recovers its initial cost of the investment. It can be calculated by dividing the initial investment by the annual cash inflow from the project.

To Indicate:

If the 100% average rate of return is equal to one year payback

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