Simple rate of return

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Simple rate of return

The return from investments figured by dividing income plus capital gains by the amount of capital invested. The effect of compounding is not taken into account.

Simple Rate of Return

An estimate of the return on an investment. It is calculated simply by finding the investment's profit before taxes and interest expenses. The simple rate of return is easy to calculate but is not always accurate because it considers the investment's profit rather than cash flow. It also does not take into account the effects of compounding. It is also called the accounting rate of return or the book value method.
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Thus, taxpayers using the fair market value method must switch to the tax book or alternative tax book value method for the taxpayer's first taxable year beginning after that date.
Similar to the book value method, however, the ease of use may be outweighed by the departure from determining an accurate economic value.
An often-overlooked significant event is the use of the tax book value method (or alternative tax book value method) of apportioning interest expense under Sec.
The adjusted book value method usually renders a value higher than reported book value.
To support our approach we used the most common valuation methods of each class of methods, as follows: Based on balance-sheet methods--Adjusted Book Value method; Based on income methods--Discounted Cash Flow method (DCF), Capitalized Earnings Method and based on mixed methods--Indirect method, Goodwill method.
The book value method is based on the idea that a firm's value can be found in the reported net worth of its underlying assets (Kam, 1986).
It is more practical than the book value method and, according to the Uniform Partnership Act (UPA), is the preferred method if no buyout clause has been established in the original partnership agreement.
1.861-9(i) provides for the election of the alternative tax book value method. All methods require a determination of average asset values within each statutory grouping and the residual grouping computed for the year on the bases of the values of assets at the beginning and end of the year, unless such averaging results in a substantial distortion of asset values (such as significant midyear acquisitions).
Some modifications of the book value method include the tangible book value method, which basically includes only assets, such as cash, inventory, equipment, and real estate.
Department of the Treasury and Internal Revenue Service issued temporary and proposed regulations under section 861 of the Internal Revenue Code, relating to the use of an alternative tax book value method for allocating and apportioning interest expense.
In the book value method, the company's valuation is deemed equal to the book value of the net assets at the date of the valuation.
1.861-9T(g)-(i), a taxpayer may elect to value assets on the basis of tax book value or fair market value (FMV), or on an alternative tax book value method, when allocating and apportioning interest expense.