Fifth edition Alnoor Bhimani Charles T. Horngren Srikant M. Datar Madhav V. Rajan Farah Ahamed


Accounting rate of return (ARR) method



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Accounting rate of return (ARR) method
Students are often confused about when to include depreciation expense in evaluating a capital- budgeting project. NPV, IRR, payback and BET methods are all based on cash flows. Depreciation expense is not a cash flow. In contrast, the ARR is accounting income divided by investment. Depreciation expense is relevant in calculating the accounting income.


Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 5
th
Edition, Instructor’s Manual
© Pearson Education Limited 2012

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