Project A has cash flows of -$74,900, $18,400, $26,300, and $57,100 for Years 0 to 3, respectively. Project B has cash flows of -$79,000, $18,400, $22,700, and $51,500 for Years 0 to 3, respectively. Both projects are independent, have multiple noncash expenses, and use straight-line depreciation to a zero balance over the project's life. Neither project has any salvage value. Both projects have a required accounting return of 11.5 percent. Should you accept or reject these projects based on the average accounting return?
A) Accept Project A and reject Project B
B) Reject Project A and accept Project B
C) Accept both projects
D) Reject both projects
E) The AAR cannot be computed.

Question

Quizplus · Accepted Answer

The Answer of Project A has cash flows of -$74,900, $18,400, $26,300, and $57,100 for Years 0 to 3, respectively. Project B has cash flows of -$79,000, $18,400, $22,700, and $51,500 for Years 0 to 3, respectively. Both projects are independent, have multiple noncash expenses, and use straight-line depreciation to a zero balance over the project's life. Neither project has any salvage value. Both projects have a required accounting return of 11.5 percent. Should you accept or reject these projects based on the average accounting return?
A) Accept Project A and reject Project B
B) Reject Project A and accept Project B
C) Accept both projects
D) Reject both projects
E) The AAR cannot be computed.

Project a Has Cash Flows of -$74,900, $18,400, $26,300, and $57,100