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Dear sir,
Would like to ask a question when calculate the ARR :
Estimated average annual profit / average investment x 100%
Why the average investment = the initial investment “Plus ” residual value & divided the amount by 2?
Why not “deduct “the residual value & why divide by 2, not the whole project year (for example 5 years), thanks.
Average = average of initial investment and ending investment.
To take an extreme example, if you had $100 in the bank at the start of the year and $90 at the end, your average would be (100 + 90)/2 = 95, not (100 – 90)/2 = 5.
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