Which of the following is the formula for the accounting rate of return?
A)Net initial investment ÷ Annual cash flow
B)(Project revenue - Project operating expenses) ÷ (Initial investment - salvage of old asset)
C)Present value of future cash flows ÷ Net initial investment
D)Net initial investment ÷ Present value of future cash flows

Question

Quizplus · Accepted Answer

The accounting rate of return (ARR) is calculated by dividing the average annual profit by the initial investment. The formula is essentially (Project revenue - Project operating expenses) ÷ (Initial investment - salvage of old asset), which reflects the average return over the investment's life, considering any salvage value from replaced assets.

Which of the Following Is the Formula for the Accounting