Calculate the Accounting Rate of Return (ARR) and rank the machine accordingly: Particulars Machine A Machine B Initial Investment ₹87,500 ₹87,500 Cash flow after tax Year 1 26,250 8,750 Year 2 35,000 26,250 Year 3 43,75

Calculation of Accounting Rate of Return (ARR): Depreciation per year = Initial Investment / Life of machine = ₹87,500 / 5 years = ₹17,500 Particulars Machine A (₹) Machine B (₹) Total Cash Flow after Tax (CFAT) 1,48,750 1,57,500 Less: Depreciation (machine has life of 5 years) (87,500) (87,500) Profit after Tax 61,250 70,000 Average Profit after Tax (Profit after Tax / 5 years) 12,250 14,000 Average Rate of Return (ARR) = (Average Profit after Tax / Initial Investment) x 100 For Machine A: ARR = (₹12,250 / ₹87,500) x 100 = 14% For Machine B: ARR = (₹14,000 / ₹87,500) x 100 = 16% Ranking of Machine as per ARR: Machine B: Rank -1 Machine A: Rank -2 Alternate Solution (Based on Average Investment): Average Investment = (Initial Investment + Salvage Value) / 2 Assuming Salvage Value = 0 Average Investment = (₹87,500 + 0) / 2 = ₹43,750 (for both machines) Average Rate of Return (ARR) = (Average Profit after Tax / Average Investment) x 100 For Machine A: ARR = (₹12,250 / ₹43,750) x 100 = 28% For Machine B: ARR = (₹14,000 / ₹43,750) x 100 = 32% Ranking of Machine as per ARR: Machine B: Rank -1 Machine A: Rank -2