Consider the previous question with the following details:

A company is considering a project that will last for $4$ years with no residual value. The project has the following annual cash flows and details:

Time $0$: Cash flow $=-$$$165,000($Cost of project$)$

Time $1$: Cash flow $=$$$85,000,$ Net Income $=$$$43,750$

Time $2$: Cash flow $=$$$66,000,$ Net Income $=$$$24,750$

Time $3$: Cash flow $=$$$50,000,$ Net Income $=$$$8,750$

Time $4$: Cash flow $=$$$50,000,$ Net Income $=$$$8,750$

Average Book Value $=$$$82,500$

The required annual return on projects of this risk is $24\%.$

The company is trying to determine whether or not to accept this project. They use the average accounting return $($AAR$)$ method of evaluation and their decision rule is that they will proceed with the project if the AAR is at least $25\%.$

True or False: Based on their evaluation method and decision rule, they SHOULD accept this project.

True

False

Reset Selection