Martin Short, managing director of Mills Ltd, has received a report from his finance manager recommending four investment projects for his approval. However, the firm only has sufficient funds to invest in one project. The firm's rate of return is 6%. The accounting rate of return for each project is: A, 10%; B, 8%; C, 12%; and D, 14%. Short will select:

Question

Quizplus · Accepted Answer

The best choice is Project D, as it has the highest accounting rate of return at 14%. This means the project will generate more profit per dollar invested compared to the other three projects. Furthermore, the firm's rate of return of 6% is lower than the accounting rate of return for all four projects, so choosing the project with the highest accounting rate of return will help maximize the firm's return on investment.

Martin Short, Managing Director of Mills Ltd, Has Received a Report