Final answer:
The accounting rate-of-return approach is a method used to evaluate the profitability of a capital project by calculating the average annual profit as a percentage of the initial investment.
Step-by-step explanation:
The accounting rate-of-return approach, also known as the simple rate of return approach, is a method used to evaluate the profitability of a capital project. It calculates the average annual profit generated by the project as a percentage of the initial investment. The formula for accounting rate-of-return is:
Accounting Rate of Return = Average Annual Profit / Initial Investment
For example, if a company invests $100,000 in a project and the average annual profit generated by the project is $20,000, the accounting rate-of-return would be 20% ($20,000 / $100,000 * 100%).