Definition

Annual rate of return technique

Annual rate of return technique determines the profitability of a capital expenditure by dividing expected annual net income by the average investment.

The annual rate of return technique is based directly on accounting data.

The formula for computing the annual rate of return is as follows.

Expected Annual Net Income ÷ Average Investment = Annual Rate of Return

Share it:  Cite

More from this Section

  • Earning power
    Earning power means the normal level of income to be obtained in the future. Earning power ...
  • Current assets
    Current assets are that a company expects to convert to cash or use up within one year. ...
  • Taxation
    Taxation is an area of public accounting involving tax advice, tax planning, preparing ...
  • Acid-test (quick) ratio
    Acid-test (quick) ratio is a measure of a company’s immediate short-term liquidity; ...
  •  Direct labor budget
    The direct labor budget contains the quantity (hours) and cost to direct necessary to ...