09-07-2005, 05:02 PM
ARR, accounting rate of return is calculated by Average Profit/Average Investment or Initial Investment. If a project runs for 3 years, estimates its profit and determine the avrdage profit by dividing the three years profits by number of yeras, This give you a average profit. Initial Investment is already knowm.
Benchmark!Rob the main reason of calculating the ARR is to detrmine the return which we expect from initial investment. Usually for capital investment decisions management usually compares this ARR with its required rate of return to detremine the acceptable project.
I hope this will help you.
Benchmark!Rob the main reason of calculating the ARR is to detrmine the return which we expect from initial investment. Usually for capital investment decisions management usually compares this ARR with its required rate of return to detremine the acceptable project.
I hope this will help you.
