If the accounting rate of return exceeds the required accounting rate of return, what action should be taken?

When the accounting rate of return (ARR) exceeds the required accounting rate of return, it indicates that the expected profitability of the investment is higher than what is necessary to justify the investment. In other words, the project's anticipated returns are favorable relative to the threshold set for acceptable investments.

Investing in the capital asset is a sound decision in this context because it aligns with the goal of maximizing returns and ensuring that funds are allocated to projects that generate positive value for the organization. The ARR serves as a tool to evaluate the efficiency and profitability of investment opportunities, and when it surpasses the required rate, it signifies that the investment is expected to perform well according to the company’s criteria. Hence, taking action to invest would be in the best interest of the company, as it aims to enhance profitability and shareholder value.