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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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What is the accounting rate of return? Compute the ARR for an investment that requires an initial outlay of $300,000 and promises an average net income of $100,000.

To determine

Define accounting rate of return (ARR). Find out ARR of an investment that requires an initial outlay of $300,000 and promises an average net income of $100,000.

Explanation

Accounting rate of return:

A method that measures returns from an investment in terms of income instead of cash flow is known as accounting rate of return. It is a non-discounting model of capital investment decision.

Use the following formula to calculate accounting rate of return (ARR):

ARR=AverageincomeInitial </

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