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Accounting Rate of Return (ARR)

2a Refer to lines 37–48 and Table 2. Calculate, for the purchase of the
automated milking machinery, the:
(i) accounting rate of return (ARR) (2 marks) Summer 2019 Paper 32

ARR = Annual return/Capital cost x 100
Total Return = $940 000 or 940 000
Annual return = $940,000/5 =$188 000 or 188 000
Capital Cost = $2,000,000
ARR = 9.4% (3)

OR

ARR = Annual return/Average investment x 100
Where: Average investment = (Initial capital cost + scrap value)/2
Return = $940 000
Annual return = $188 000
ARR = 188 000/(2.2/2) × 100 = 17.1% (3)