Question
Blink 281 Corporation is considering an investment that will cost $120,000 and last for five years. The investment will be amortized on a straight-line basis
Blink 281 Corporation is considering an investment that will cost $120,000 and last for five years. The investment will be amortized on a straight-line basis over that period. Earnings generated by the investment before amortization and taxes over this period are as follows:
Year 1 $35,000
Year 2 37,000
Year 3 41,000
Year 4 45,000
Year 5 50,000
Blink 281 Corporation has a tax rate of 25 percent.
1. .What is the AAR of this project?
2. Should this project be accepted? What criteria would you use to accept or decline the project?
3. What are the problems with this type of analysis?
Can you please help me answer questions 2 and 3? Please.
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