A company wishes to make an investment of Rs. 50,000 in a machine. The machine has a life of 5 years. The profit after tax on account of this machine for next five years is Rs. 7,500; Rs. 8,200; Rs. 7,900; Rs. 8,900 and Rs. 6,500 respectively. Calculate the Accounting Rate of Return (ARR) for this investment purpose

To calculate the Accounting Rate of Return (ARR), we need to find the average annual profit from the investment and then divide it by the initial investment cost.

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Here’s how to do it:

1. Calculate the total profit over the machine’s life:
   Total profit = Rs. 7,500 + Rs. 8,200 + Rs. 7,900 + Rs. 8,900 + Rs. 6,500
   = Rs. 39,000
2. Calculate the average annual profit:
   Average annual profit = Total profit / Number of years
   = Rs. 39,000 / 5
   = Rs. 7,800
3. Calculate the ARR:
   ARR = (Average annual profit / Initial investment) * 100
   = (Rs. 7,800 / Rs. 50,000) * 100
   = 0.156 * 100
   = 15.6%

So, the Accounting Rate of Return (ARR) for this investment is 15.6%.