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What is the accounting rate of return on the investment project?

<p>The Management of the Pizza Delivery wants to install new Pizza Machine in its restaurant, whose details are as follows.</p> <p>1.Cost Rs140,000 and has a10-year life.</p> <p>2.Will generate incremental revenues of Rs100,000 and incremental expenses of Rs65,000, including depreciation. </p>

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Question ajoutée par Hassan Sardar , Service Center Official , Board of Revenue, Punjab, Pakistan
Date de publication: 2014/10/22
Muhammad Qureshi
par Muhammad Qureshi , ManagerBusiness Development , Aeromotive Technologies

Again i will ask finance professionals to give feed back to take action on new installation

Muhammad Salman Jahanzeb
par Muhammad Salman Jahanzeb , Assistant Manager Accounts , Prudent Accountants

Assuming all factors remain constant over a10 year period and the scrap value is0.

 

Calculations can be done using two methods.

Formula1:

ARR=Average profits/ initial investment

ARR=(100,000 -65,000)/140,000 =35,000/140,000 =0.25 or25 %

 

Formula2:

ARR= Average profits/ Average investment

ARR=35000/((140,000 +0) /2) =0.5or50%

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