What does the Accounting Rate of Return (ARR) represent?

The Accounting Rate of Return (ARR) is a financial metric used to evaluate the profitability of an investment. It represents the average annual profit earned throughout the life of an investment divided by the initial investment cost. This means that option B accurately describes ARR, as it focuses on assessing the return generated relative to the initial amount invested, providing a simple percentage that investors can use to compare the profitability of different investments.

In contrast, the other options do not accurately represent what ARR measures. The total cash inflow over time might reflect the overall economic benefits of an investment, but it does not provide a return metric based on the original investment. The ratio of profit to revenue, on the other hand, is related to profitability but does not consider the initial investment, making it distinct from ARR. Lastly, the difference between total expenses and revenue pertains to net profit and does not take into account how this profit relates to the amount invested, failing to embody the essence of ARR.