ARR

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ARR = Average annual profit / Average investment to earn profit X 100

Average Annual profit is Profit per year less the annual depreciation / divided by the number of years

Average Investment = Cost of machine + Disposal value / 2

Dont forget to add working capital to the average annual investment HOW

ARR = ROCE except ARR is calculated before the investment. ROCE is calculated after

ARR ignore the time value of money Looks at accounting profits and not cash It doesnt look at sizes of investment Its a percentage solution


See also Payback IRR NPV

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