The Depot is considering a project with an initial cost for fixed assets of $279,900 and annual sales of $284,000 for four years.The profit margin is 6.72 percent,and the tax rate is 34 percent.The fixed assets will be depreciated straight-line over the life of the project to a zero book value.The required average accounting rate of return is 14.5 percent.Should this project be accepted or rejected? What is the AAR?
A)Rejected; 14.81%
B)Rejected; 13.68%
C)Rejected; 15.03%
D)Accepted; 14.81%
E)Accepted; 13.68%

Question

Quizplus · Accepted Answer

AAR = (0.0672 × $284,000)/ [($279,000 + 0)/ 2] = 0.1368,or 13.68%; Reject

The Depot Is Considering a Project with an Initial Cost