Chapter 26, Problem 14RQ

To determine

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:

$ARR=\frac{AverageAccountingprofits}{AverageInvestment}$

Hence, higher the ARR better it is. A project with the Higher ARR is chosen first in the capital rationing process.

To explain: The decision rule of ARR