On the basis of the Average rate of return method, the company can select all those projects who’s ARR is ______ than the minimum rate established by the company. It can reject the projects with an ARR ______ than the expected rate of return.
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What Is the Accounting Rate of Return – ARR?
The accounting rate of return (ARR) is the percentage rate of return expected on investment or asset as compared to the initial investment cost. ARR divides the average revenue from an asset by the company's initial investment to derive the ratio or return that can be expected over the lifetime of the asset or related project. ARR does not consider the time value of money or cash flows, which can be an integral part of maintaining a business.
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