I need to calculate Accounting rate of return
I know that it is Average Profit/Average investment
If project 1
Cost is 1,000,000
And cash flows are Year 0 0
Year 1 150,000
Year 2 200,000
3 300,000
4 450,000
5 500,00

Project 2
Year 0 0
Year 1 400,000
Year 2 240,000
Year 3 140,000
Year 4 40,000
Year 5 40,000

1,000,000 1,000,000

150,000 400,000
200,000 240,000
300,000 140,000
450,000 40,000
50,000 40,000

1,150,000 860,000

150,000 -140,000

30,000 -28,000

3% p.a. -2.8% p.a.

______________________________________

Hi,
I think that to be more specific, here is the formula:

ARR=((revenue-cost)/average capital employed)*100
In your case:
Your revenues are (Project 1: 150k+200k+300k+450k50k =1,150K - Project 2: 400k+240k+140k+40k+40k = 860k)
The average capital employed is the half of capital outlay in this case Project 1 and 2: 1,000,000/2 =500,000
Project 1 Project2
Your ARR= ((1,150,000-1,000,000)/500,000)*100= 30% ----- ARR= ((860,000-1,000,000)/500000)*100 = -28%

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