ARR and Investment Quiz

What does ARR measure?

• Time taken to recover investment

• Average annual profit as a percentage of initial investment

• Total cash inflow

• Net present value

Which formula represents ARR?

• Profit ÷ Time

• Cash flow ÷ Investment

• (Average annual profit ÷ Initial investment) × 100

• Cash ÷ Years

A project costs $100 000 and generates total net cash flow of $140 000 over 4 years. ARR?

• 5%

• 10%

• 15%

• 20%

A project generates profit of $100 000 over 5 years. Average annual profit?

• $10 000

• $20 000

• $25 000

• $30 000

A project costs $150 000 and generates profit of $60 000 over 4 years. ARR?

• 5%

• 8%

• 10%

• 12%

A project costs $80 000 and earns $25 000 annually for 4 years. ARR?

• 10%

• 12.5%

• 15.63%

• 20%

Which is TRUE about ARR?

• Measures time

• Measures profitability

• Ignores profit

• Uses years

Businesses prefer:

• Lower ARR

• Higher ARR

• Longer PBP

• Higher cost

First step in ARR calculation:

• Percentage

• Monthly flow

• Total profit

• Cumulative flow

A project costs $120 000, total net cash flow $180 000 over 6 years. ARR?

• 5%

• 8.33%

• 10%

• 12%