Question
An investment has an initial cost of $3.3 million. This investment will be depreciated by $900,000 a year over the three-year life of the project.
An investment has an initial cost of $3.3 million. This investment will be depreciated by $900,000 a year over the three-year life of the project. Should this project be accepted based on the average accounting rate of return if the required rate is 10.0 percent? Why or why not?
Year Net Income
1 $211,700
2 186,400
3 165,500
Answers:
A.Yes, because the AAR is less than 10.0 percent.
B. No, because the AAR is greater than 10.0 percent
C. Yes, because the AAR is greater than 10.0 percent
D.No, because the AAR is less than 10.0 percent Yes, because the AAR is 10.0 percent
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started