Average annual rate of return method

Input(s)

C: Initial Investment/Capital (\$)

I: Interest paid by "i" rate for the Capital (\$)

$i$: Rate of Interest (per cent)

B: Total Balance not Amortized (\$)

$D$: Present worth Factor (dimensionless)

Output(s)

P: Profit (\$)

E: Total Net Undiscounted Cash Flow during the whole project (\$)

$r$: Annual Average Rate of Return (\$)

Formula(s)

$$ \begin{gathered} \mathrm{P}=\mathrm{i} \sum \mathrm{B} \\ \mathrm{E}=\mathrm{C} \cdot \mathrm{I} \cdot \mathrm{P} \\ \mathrm{r}=\mathrm{i} \frac{\mathrm{D}}{1-\mathrm{D}}\left(\frac{\mathrm{E}}{\mathrm{C}}-1\right) \\ \mathrm{C} \leq \frac{\mathrm{DE}}{\frac{\mathrm{r}}{\mathrm{i}}-\mathrm{D}\left(\frac{\mathrm{r}}{\mathrm{i}}-1\right)} \end{gathered} $$

Reference(s)

Serpen, U., Petroleum Economics, Course Notes, ITU Petroleum and Natural Gas Engineering, Istanbul, Turkey, (2008) Page: 40.