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.