Asked by ethan battista on Jun 27, 2024
Verified
The accounting rate of return is calculated as:
A) The after-tax income divided by the total investment.
B) The after-tax income divided by the annual average investment.
C) The cash flows divided by the annual average investment.
D) The cash flows divided by the total investment.
E) The annual average investment divided by the after-tax income.
After-Tax Income
The amount of income that remains for an individual or a business after all federal, state, and withholding taxes have been deducted from taxable income.
- Learn the fundamentals and arithmetic involved in computing the accounting rate of return (ARR) for capital allocations.
Verified Answer
ZK
Zybrea KnightJul 02, 2024
Final Answer :
B
Explanation :
The accounting rate of return is calculated by dividing the average annual income by the average investment. It is expressed as a percentage. Choice A is incorrect as it doesn't take into account the time period for the investment. Choice C and D are incorrect as they divide the cash flows by investment, which may not give an accurate picture of the profitability of the investment. Choice E is incorrect as it would give an inverse ratio of the actual accounting rate of return.
Learning Objectives
- Learn the fundamentals and arithmetic involved in computing the accounting rate of return (ARR) for capital allocations.