Understanding the Average Rate of Return for Business Investments

The video tutorial explains the Average Rate of Return (AR) as a measure of investment profitability. It covers the AR formula, which is the average annual profit divided by the initial investment cost, multiplied by 100. The tutorial highlights the importance of AR in comparing different investment projects and provides a detailed example of calculating AR using a table. It also discusses the pros and cons of AR, noting its simplicity and focus on profitability, but also its lack of consideration for cash flow timing.

Describe the process of calculating the average annual profit from total profit and years.

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What are the advantages and disadvantages of using the average rate of return?

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In your own words, summarize the concept of average rate of return for an investment.

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