A project has average net income of $4,160 a year over its 4-year life.The initial cost of the project is $65,000 which will be depreciated using straightline depreciation to a zero book value over the life of the project.The firm wants to earn a minimal average accounting return of 11.65 percent.Should the project be accepted or rejected? What is the AAR?
A)Accepted;10.24%.
B)Accepted;11.08%.
C)Accepted;12.80%.
D)Rejected;10.24%.
E)Rejected;12.80%.

Question

Quizplus · Accepted Answer

Average book value = ($65,000 + 48,750 + 32,500 + 16,250 + 0)/5 = $32,500AAR = $4,160/$32,500 = .1280,or 12.80 percent

A Project Has Average Net Income of $4,160 a Year