Using the information in the table below,calculate the ARR.

$\begin{array}{|l|r|}
\hline \text {Average profit before depreciation} &\$ 75000 \
\hline\text { Annual depreciation }& \$ 15000 \
\hline \text {Period of investment} & \text {4 years} \
\hline \text {Initial investment }&\$ 800000 \
\hline \text {Value at end of the investment period} & \$ 100000 \
\hline
\end{array}$

Question

Using the information in the table below,calculate the ARR.

$\begin{array}{|l|r|}
\hline \text {Average profit before depreciation} &\$ 75000  \
\hline\text { Annual depreciation }& \$ 15000  \
\hline \text {Period of investment} & \text {4 years} \
\hline \text {Initial investment }&\$ 800000 \
\hline \text {Value at end of the investment period} & \$ 100000 \
\hline
\end{array}$

Quizplus · Accepted Answer

ARR (Average Rate of Return) is calculated by dividing the total profits by the average investment over the project's life. 
For the given table, we need to find the average investment and total profits.

Average investment = (Initial investment + Salvage value) / 2 
= (50000 + 5000) / 2
= 27500

Total profits = Annual net cash inflow x Number of years - Initial investment 
= (10000 x 3) - 50000 
= 20000

ARR = Total profits / Average investment x 100 
= 20000 / 27500 x 100 
= 72.72% / 5 
= 14.54%

Therefore, the closest option among the given choices is C, 13.33%.

Using the Information in the Table Below,calculate the ARR A) 15% B) 16

Using the Information in the Table Below,calculate the ARR A) 15%
B) 16