Table 15.1 shows figures taken from the management consultants’ report prepared for Smart Sports Ltd into the launch of the new internet site and warehouse, identifying the forecast costs and profits associated with the project.

In order to simplify any appraisals, it will be assumed that all profits arise on the last day of a given year. The operating profits given in Table 15.1 exclude any depreciation that would be charged on the warehouse and website software.
Using the figures for the Smart Online project shown in Table 15.1, we can calculate the ARR for the project.

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Table 15.1 The Smart Online Project Timing '000 Already paid At start Cost of website development 25 After one year Cost of building and equipping the warehouse Operating profit from online sales, before depreciation 2,000 350 After two years Operating profit from online sales, before depreciation 675 After three years Operating profit from online sales, before depreciation 1,200 After four years After five years Operating profit from online sales, before depreciation Operating profit from online sales, before depreciation 850 550 After five years Sale of warehouse 400