- 1 Marks
Question
ABC Limited is considering investing in a project with the following financial data:
The project life span is FOUR years and has no residual value at the end of the FOUR years. Calculate the ARR.
A. 25%
B. 30%
C. 32%
D. 33%
E. 35%
Answer
B. 30%
Explanation:
The Accounting Rate of Return (ARR) is calculated by dividing the average annual profit after depreciation by the average investment over the project’s life.
Thus, the correct ARR is 30%, which corresponds to option B.
- Tags: ARR, Investment decisions, Project Appraisal
- Level: Level 1
- Topic: Basics of Business Finance and Financial Markets
- Series: MAY 2016
- Uploader: Kwame Aikins