Which capital budgeting decision technique evaluates projects by dividing average annual accounting profit by average investment cost?

Explanation

• Accounting Rate of Return (ARR) formula: $text{ARR} = frac{text{Average Annual Accounting Profit}}{text{Average Investment Cost}}$.
• ARR uses net accounting profit rather than cash flows and completely ignores the Time Value of Money.
• A project is accepted if its ARR exceeds the management benchmark hurdle rate.