Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 10

Does the book (accounting) rate of return (ARR) method provide a true measure of the return on investment? How about the investment’s internal rate of return (IRR)?

Step 1 of 2

The accounting (book) rate of return (ARR) is equivalent to approximately a measure of accounting profit to approximate the measure of investment in the project. It can be calculated as: