MYTUTOR SUBJECT ANSWERS

182 views

What is the average rate of return ?

The Average Rate of Return or ARR is one of three types of investment appraisal that are often asked in the form of a 10 mark question. A question that involves these calculations are often very badly answered across the country and subsequently being able to do them puts you in a very strong position.

Now, the ARR method basically looks at the total accounting return for a project to ultimately see if it meets the target return.

An important component of these questions is to not get put off by the large numerical figures instead go through the questions systematically as often they are very easy.

ARR is an equation which needs to be remembered but don't panic, it is very simple:

ARR (%) - Total net profit / no of years 

               ---------------------------------------- x100

                 Initial cost

In order to understand the arithmetic, consider an item of capital (e.g. a machine) which will cost £ 1 million to purchase, is expected to last 5 years, and will produce an annual net cash flow of £ 0.5 million.

Net Profit = £500,000 (annual profit) x 5 (no of years) = £2.5 million - 1 million (initial investment)

.... gives us the total net profit of £1.5 million

£1.5million (net profit) / 5 (no of years) = 300,000

300,000 / 1 million ( initial cost) = 0.3

0.3 x 100 = an ARR of 30%

Some of this may seem confusing but believe me once you get to grasp with it, you'll be willing for one of these questions to come up as they will be guaranteed marks.

Oliver C. A Level Business Studies tutor, A Level Philosophy and Ethi...

4 months ago

Answered by Oliver, an A Level Business Studies tutor with MyTutor


Still stuck? Get one-to-one help from a personally interviewed subject specialist

7 SUBJECT SPECIALISTS

£20 /hr

Yasmin A.

Degree: Business Economics (Bachelors) - Exeter University

Subjects offered: Business Studies, Economics

Business Studies
Economics

“Top tutor from the renowned Russell university group, ready to help you improve your grades.”

£22 /hr

Emma S.

Degree: Education Studies Sociology (Bachelors) - Durham University

Subjects offered: Business Studies

Business Studies

“About me:  I am an Education studies student at Durham Univeristy. Business Studies is something I have always enjoyed and had a knack for. As an AS and A2 student I used to do free tutoring for peers helping them to understand conten...”

£22 /hr

Robyn C.

Degree: Business Management (Bachelors) - Cardiff University

Subjects offered: Business Studies, -Personal Statements-

Business Studies
-Personal Statements-

“Hi, my name is Robyn and I am a Business Management student at Cardiff University.  I am very patient and friendly and really enjoy teaching. I have been teaching Taekwondo since I was 15, so have a lot of experience teaching, with pe...”

About the author

Oliver C.

Currently unavailable: for regular students

Degree: Philosophy, Politics and Economics (Bachelors) - Manchester University

Subjects offered: Business Studies, Philosophy and Ethics

Business Studies
Philosophy and Ethics

“About me: Hello, my name is Ollie and I am in my first year studying Philosophy, Politics and Economics at the University of Manchester. I absolutely loved my time in 6th form and I would love to have the opportunity to share the pass...”

MyTutor guarantee

You may also like...

Posts by Oliver

Explain the significance of the Golden Mean in relation to Aristotle's Virtue Theory ?

What is the average rate of return ?

Other A Level Business Studies questions

What is the average rate of return ?

how many users are invoked in business meeting?

What are some of the benefits of redistributing income in the UK?

What are methods of promotion?

View A Level Business Studies tutors

Cookies:

We use cookies to improve our service. By continuing to use this website, we'll assume that you're OK with this. Dismiss

mtw:mercury1:status:ok