It does not taken into the consideration of cash inflows which are more important than the accounting profits. 6. It ignores the period in which the profits are earned as a 20% rate of return in 10 years may be considered to be better than 18% rate of return for 6 years. ARR calculates the return, generated from net income of the proposed capital investment. The ARR is a percentage return. Say, if ARR = 7%, then it means that the project is expected to earn seven cents out of each dollar invested (yearly). If the ARR is equal to or greater than the required rate of return, the project is acceptable. The simplest rate of return to calculate is the accounting rate of return (ARR). This is a very fundamental calculation to determine how much value an investment generates for the corporation and its owners, the stockholders. The accounting rate of return (ARR) is the return an individual can expect to receive based on an investment made. ARR is also known as the simple rate of return and is useful for the speedy calculation of a company’s financial success or failures.

## Accounting Rate of Return (ARR) is the amount of profit, or return, that an individual can expect based on an investment made. Accounting rate of return.

Compute accounting rate of return (ARR) of the machine using above information. Should Fine Clothing Factory purchase the machine if management wants an accounting rate of return of 15% on all capital investments? Solution: (1): Computation of accounting rate of return: = $60,000 * / $350,000 ** = 17.14% * Incremental net operating income: It does not taken into the consideration of cash inflows which are more important than the accounting profits. 6. It ignores the period in which the profits are earned as a 20% rate of return in 10 years may be considered to be better than 18% rate of return for 6 years. ARR calculates the return, generated from net income of the proposed capital investment. The ARR is a percentage return. Say, if ARR = 7%, then it means that the project is expected to earn seven cents out of each dollar invested (yearly). If the ARR is equal to or greater than the required rate of return, the project is acceptable. The simplest rate of return to calculate is the accounting rate of return (ARR). This is a very fundamental calculation to determine how much value an investment generates for the corporation and its owners, the stockholders.

### The accounting rate of return (ARR) is a simple estimate of a project's or investment's profitability that subtracts money invested from returns without regard to interest accrual or applicable taxes.

15 Nov 2017 Discounted Payback Period DPP, Accounting Rate of Return ARR, Internal Rate of Return IRR, and Profitability. Index PI. Most of the used 7 Jun 2010 Accounting Rate of Return (ARR) method is one of the most widely used technique of capital budgeting decisions. 27 Mar 2019 Accounting rate of return is a simple capital budgeting technique which does not take into consideration the time value of money. The accounting rate of return (ARR) is the percentage rate of return expected on an investment or asset as compared to the initial investment cost. ARR divides the average revenue from an asset by the company's initial investment to derive the ratio or return that can be expected over the lifetime of the asset or related project. Accounting Rate of Return (ARR) is the average net income Net Income Net Income is a key line item, not only in the income statement, but in all three core financial statements. While it is arrived at through the income statement, the net profit is also used in both the balance sheet and the cash flow statement. an asset is expected to generate divided by its average capital cost, expressed as an annual percentage.