The Average Rate of Return (ARR), or the Accounting Rate of Return (AAR), is a commonly used approach in capital budgeting. ARR measures an investment's profitability by comparing the average accounting profit to the average accounting value.

For instance, a retail company considering a $300,000 investment in new inventory management software could use ARR to estimate profitability. If the software is expected to generate an additional $60,000 in annual profits over five years, ARR would give the company a way to gauge the return on this investment.

This metric provides a straightforward way to assess financial performance by calculating the annual return as a percentage of the investment's average book value. While ARR is appealing for its simplicity, it does not account for the time value of money or consider the risks associated with an investment. Despite these limitations, ARR remains applicable for quick, initial investment assessments in capital budgeting.

Z rozdziału 7:

article

Now Playing

7.15 : Average Rate of Return

Capital Budgeting

31 Wyświetleń

article

7.1 : Introduction to Capital Budgeting

Capital Budgeting

155 Wyświetleń

article

7.2 : Basics of Investment Decision-making

Capital Budgeting

96 Wyświetleń

article

7.3 : Importance of Capital Budgeting

Capital Budgeting

71 Wyświetleń

article

7.4 : Advantages and Limitations of Capital Budgeting

Capital Budgeting

212 Wyświetleń

article

7.5 : Capital Budgeting Techniques

Capital Budgeting

118 Wyświetleń

article

7.6 : Payback

Capital Budgeting

70 Wyświetleń

article

7.7 : Payback Period

Capital Budgeting

37 Wyświetleń

article

7.8 : Discounted Payback Period

Capital Budgeting

52 Wyświetleń

article

7.9 : Net Present Value

Capital Budgeting

110 Wyświetleń

article

7.10 : Net Present Value Method

Capital Budgeting

119 Wyświetleń

article

7.11 : Decision-making Through Net Present Value

Capital Budgeting

40 Wyświetleń

article

7.12 : Internal Rate of Return

Capital Budgeting

26 Wyświetleń

article

7.13 : Calculating Internal Rate of Return

Capital Budgeting

27 Wyświetleń

article

7.14 : Decision-making Through Internal Rate of Return

Capital Budgeting

31 Wyświetleń

See More

JoVE Logo

Prywatność

Warunki Korzystania

Zasady

Badania

Edukacja

O JoVE

Copyright © 2025 MyJoVE Corporation. Wszelkie prawa zastrzeżone