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ARR Accounting rate of return with scrap value

This topic has 3 replies, 4 voices, and was last updated 10 years ago by saquibsher.

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November 21, 2011 at 8:19 pm #50613
pannanikt
Member
- Topics: 8
- Replies: 83
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?
November 22, 2011 at 1:24 am #90026
cmas
Member
- Topics: 2
- Replies: 9
to get the average capital investment u need to add scrap value.
November 26, 2011 at 6:51 am #90027
Anonymous
Inactive
- Topics: 0
- 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.
January 14, 2014 at 6:00 pm #154066
saquibsher
Participant
- Topics: 14
- Replies: 10
ARR is added to the initial investments because it is an opportunity cost
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