Introduction to Average Rate of Return in Investment Appraisal

The video tutorial explains investment appraisal, focusing on the average rate of return (ARR) as a method to evaluate investment projects. It details how ARR is calculated by dividing the average annual return by the initial outlay and converting it to a percentage. The tutorial compares three projects, highlighting the importance of cash flow timing and payback periods. It also discusses the advantages and disadvantages of ARR, noting its simplicity but also its limitations, such as ignoring cash flow timing, opportunity costs, and risk assumptions.

How can the timing of cash flows affect the evaluation of investment projects?

What risks should be considered when making forecasts for investment returns?