So the average accounting return is an investment technique, a decision technique that identifies the average net earnings, relative to the average investment and the net earnings are calculated using accounting. So, in this example, our net earnings are revenue minus expenses minus depreciation and taxes. And the decision rule is very straightforward. You choose the project with the highest average accounting rate of return. For example, let's suppose we have an initial investment of $10,000. It will generate cash in flows of $2,500 per year over 5 years. In this case we know that after 5 years this has no salvage value. So it's depreciates at one-fifth of it's value. So we take $10,000 divided by five years to get the depreciation, $2000. Then our net revenue is $2500, there's no additional expenses here, but my depreciation is 2,000 and if I have no additional taxes then I have net earnings per year of $500. I take my $500 and divide that by my initial investment, $10,000 and now I get an average accounting rate of return of 5%, 500 divided by 10,000. You may be seeing higher cash flows and those are not treated differently than lower cash flows. And so, it doesn't differentiate higher cash flows later or lower cash flows earlier or higher cash flows earlier and smaller cash flows later. It treats them all the same. It uses earning rather than cash flow so looks at your net relative to both your taxes and depreciation. And given the fact that different investments may depreciate at different rates, then what it does is it forces your company to make decisions about how is an asset going to depreciate. What are the taxes involved in that? The average accounting rate of return has advantages and disadvantages. Its advantages are that it's really easy to understand. It's just a percentage return. So your net incomes has a ratio of your initial costs. And you can compare two different investments and say, let's choose the one with the highest rate of return. It's easy to calculate, take your earnings minus any additional expenses, depreciation in taxes and you get an accounting rate of return. It's very digestible, it's easy to talk about, the disadvantages are that again, this technique does not differentiate between future cash flows and cash flows that are coming much sooner. And so since it doesn't use discounted cash flows, a project that gives you more money in the future, maybe disregard it. There are advantages, there are disadvantages. But it is relatively easy to use, easy to understand, and easy to communicate.