Accounting Rate of Return¶
Formula¶
Average Rate of Return Method¶
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\[\text{Average Rate of Return} = \frac{\text{Average Annual Profit}}{\text{Net Investment in the Project}} \times 100 \]
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\[\text{Average Annual Profit} = \frac{\text{Total Profit After Depreciationn and After Tax}}{\text{Number of Years}} \]
Return Per unit of Investment Method¶
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\[\text{Return Per unit of Investment} = \frac{\text{Total Profit After Depreciationn and After Taxes}}{\text{Net Investment in the project}} \times 100 \]
Return on Average Investment Method¶
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\[\text{Return on Average Investment} = \frac{\text{Total Profit After Depreciationn and After Taxes}}{\text{Average Investment}} \times 100 \]
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\[\text{Average Investment} = \frac{\text{Initial Investment + Scrap Value}}{2} \]
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\[\text{Average Investment} = \frac{\text{Initial Investment}}{2} \]
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\[\text{Average Investment} = \frac{\text{Initial Investment + Salvage Value}}{2} + \text{Working Capital} + \text{Scrap Value} \]
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