Using Item D, calculate the average rate of return for the new equipment if Emilios purchases it.
State the formula for the average rate of return and show your workings.

The Average Rate of Return (ARR) is a financial ratio used to measure the profitability of an investment over its lifespan. It is expressed as a percentage. - **Step 1: State the formula.** ARR = (Average annual profit / Cost of investment) × 100. - **Step 2: Find the values from Item D.** - Total profit = £28,800. - Lifespan = 8 years. - Cost of investment = £12,000. - **Step 3: Calculate the average annual profit.** Average annual profit = Total profit / Lifespan Average annual profit = £28,800 / 8 years = £3,600 per year. - **Step 4: Calculate the ARR.** ARR = (£3,600 / £12,000) × 100 ARR = 0.3 × 100 = 30%. This means the investment is expected to return an average of 30% of its cost in profit each year.