alleryStart learning →Which formula gives average investment in the ARR method?
AAverage of opening and closing values
BOpening value multiplied by life
CTotal profit divided by years
DClosing value divided by two
Answer & Solution
Correct answer: A. Average of opening and closing values
Average investment is the mean of the book value at the start of year 1 and the book value at the end of useful life.
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Related questions
Which measures do economists prefer over payback for return?Rs 9,00,000 is invested and net cash flow is Rs 1,80,000 a year. Payback?A: profit Rs 40,000 on average investment Rs 2,00,000. B: Rs 54,000 on Rs 3,60,000. HigherCost Rs 12,00,000 and scrap Rs 2,00,000. Average investment under ARR?Cost Rs 3,00,000, scrap Rs 60,000, 4 years, total profit Rs 1,44,000. ARR?Which goal underlies capital budgeting in corporate finance?Capital budgeting mainly concerns which type of spending?Companies create value when their return on capital is above what?