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Average annual profit = $0.3m; initial investment = $2.0m. ARR = (average annual profit / initial investment) x 100. Basis: this question uses the INITIAL CAPITAL OUTLAY of $2.0m. Cambridge also accepts an average-investment basis, which for this machine is $1.0m; the question tells you which figure to use.
NKS's proposed new machine has an initial investment of $2.0m and an average annual profit of $0.3m. Calculate the accounting rate of return (ARR), as a percentage, based on the initial capital outlay of $2.0m. Give the value only.
[2 marks]
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