The accounting rate of return is another non-discounting financial model commonly used in making capital investment decisions. Unlike the payback period model, the accounting rate of return uses income rather than cash flow.

Assume that the investment is the same as before: Initial outlay of $100,000 with a five-year useful life and no salvage value under straight-line depreciation. The revenues are as follows: ( Year 1: $10,000, Year 2: $20,000, Year 3: $30,000, Year 4: $40,000 and Year 5: $50,000.)

Use the minus sign to indicate a net loss. If an amount is zero, enter "0". If required, enter the accounting rate of return as a decimal (i.e. 0.3).

Total Net Income (five years)-$ Average Net Income = Accounting Rate of Return =