Average Profit Example
Samina & Saima estimated profit for the future 5 years
are as under. Calculate the average profit & average rate of return if investment
is $ 500,000.
|
Year 1
|
$ 60,000
|
|
Year 2
|
$ 70,000
|
|
Year 3
|
$ 50,000
|
|
Year 4
|
$ 60,000
|
|
Year 5
|
$ 65,000
|
Solution
1.
Average Profit of Company
= Sum of profit for n years/n years
|
Year 1
|
$ 60,000
|
|
Year 2
|
$ 70,000
|
|
Year 3
|
$ 50,000
|
|
Year 4
|
$ 60,000
|
|
Year 5
|
$ 65,000
|
|
Total Profit
|
$ 305,000
|
Average
profit for 5 Years = $ 305,000/5 (Years)
= 61,000 –( Average Profit)
2.
Accounting Rate of Return
= Average profit/Average Investment
= $ 61,000/$500,000 x 100
= 12.2%
