average rate of return Flashcards
1
Q
ARR
A
total net returns divided by expected lifetime of investment, expressed as a percentage of the initial cost of the investment
2
Q
what does it consider
A
total accounting return for a project to see if it is worthwhile
3
Q
advantages
A
clearly shows profitability
easy to identify opportunity cost
can be compared to other uses for investment
4
Q
disadvantages
A
doesn’t take cash flow into account, only profit
takes no account of time value
treats profits arising late the same as those arising early
5
Q
calculation
A
net profit/capital outlay x 100
6
Q
net profit calculation
A
total cashflows-capital cost
divide by years to calculate profit per annum
