The Formula for Calculating the Accounting Rate of Return for a Capital

question 126

Multiple Choice

The formula for calculating the accounting rate of return for a capital asset is

• A)average annual operating income from asset/amount invested in asset.
• B)average annual net cash inflow from asset/amount invested in asset.
• C)(average annual operating income + depreciation expense)/amount invested in asset.
• D)(average annual cash inflows - depreciation expense)/(amount invested in asset + residual value of asset).

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Definitions:

Cash Budget

A financial plan that estimates cash inflows and outflows over a specific period of time, often used for managing company liquidity.

Timing

The act of selecting an appropriate point or period in time to execute a particular action, often with the goal of maximizing benefit or minimizing cost.

Amount

The total sum or quantity of something, often specified in terms of money or units.

Interest

The cost of borrowing money, usually expressed as a percentage of the amount borrowed.