ARR Accounting rate of return with scrap value

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This topic contains 3 replies, has 4 voices, and was last updated by avatar saquibsher 3 months ago. This post has been viewed 563 times

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  • Avatar of pannanikt
    pannanikt
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    • Topics: 8
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    Hi, can anyone explain me why in the formula
    (total cash flows – depreciation) / project life
    ARR=


    x 100%
    (initial investment + scrap value) / 2

    scrap value is added? I would rather deducted it? Any ideas why money which are going to be received at the and of project are added to the initial investment with are outflows?


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    cmas
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    • Topics: 2
    • Replies: 10

    to get the average capital investment u need to add scrap value.


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    alancong
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    • Replies: 52

    the scrap value means at the end of the project, the value of the investment . using the openning figure and closing figur you will get the average investment during the whole life of the project.


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    saquibsher
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    ARR is added to the initial investments because it is an opportunity cost

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