The Blue Moon Is Considering a Project Which Will Produce

question 55

Multiple Choice

The Blue Moon is considering a project which will produce sales of $120,000 a year for the next five years. The profit margin is estimated at 5.5 %. The project will cost $140,000 and will be depreciated straight-line to a book value of zero over the life of the project. The firm has a required accounting return of 9.5 %. This project should be _____ because the AAR is _____ %.

• A) Rejected; 4.71
• B) Rejected; 8.57
• C) Rejected; 9.43
• D) Accepted; 9.67
• E) Accepted; 9.43

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Definitions:

Test Statistic

A value calculated from sample data that is used in a hypothesis test to determine whether to reject the null hypothesis.

Degrees Of Freedom

The number of independent values or quantities which can be assigned to a statistical distribution or calculation.

Null Hypothesis

A hypothesis stating there is no significant difference or effect, serving as the default assumption in hypothesis testing.

T Test

A statistical test used to compare the means of two groups to see if there is a significant difference between them, often used when dealing with small sample sizes.