The project is requiring an investment of 40000 and is depreciated on a SLM basis and the Cash Inflows of the project are the following, what is the ARR?
| Year | Cash flows |
| 1 | 6000 |
| 2 | 9000 |
| 3 | 7000 |
| 4 | 8000 |
| 5 | 10000 |
In this case we need to convert Cash flows to profits like the following: Profits = Cash inflows + depreciation. Here depreciation is (40000/5) = 8000. So, average profits = 16000 and the average investment = 20000. ARR= Average profits/ Average investment. Therefore, ARR = 16000/20000 = 80%
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