... taxation to the percentage of capital employed at the end of a period. Variations include using profit after interest and taxation, equity capital employed, and average capital for the period" (PowerHomeBiz.com, 2006) ARR% = (Average Net Cash Flow / Initial Capital Cost ) x 100 Average Net Cash Flow = £520,000 / 6 years = £86,667 ARR%= (86666.70 / 300,000) x 100 = 28.9% A capital investment of £300,000 produces an ARR of 28.9% over a lifespan of 6 years. This percentage figure shows Heyworth Ltd the additional cash that the company will be able to produce by accepting the proposal of investing £300,000 in new machinery. Advantages of Using ARR in the Decision Making Process: * Easy to calculate * Uses two key accounting terms, making it relatively easy to understand Marc Menendez 05260233 Disadvantages of Using ARR in the Decision Making Process: * Does not fully reflect the strategic orientation of the decisions which are being appraised. ...

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