Martin Is Analyzing a Project and Has Gathered the Following

question 11

Multiple Choice

Martin is analyzing a project and has gathered the following data. Based on this data, what is the average accounting rate of return? The firm depreciates its assets using straight-line depreciation to a zero book value over the life of the asset.

• A) 13.08 %
• B) 15.77 %
• C) 21.83 %
• D) 26.17 %
• E) 31.54 %

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Definitions:

Law of Diminishing

A principle stating that as more units of a variable input are added to fixed inputs, the additional output from each new unit of input eventually decreases.

Implicit Costs

The opportunity costs associated with a company's own resources, not directly paid for with cash but are the result of using assets instead of investing them elsewhere.

Economic Profit

The difference between total revenue and the total costs, including both explicit and implicit costs, unlike accounting profit which only considers explicit costs.

Explicit Costs

Direct financial payments made to acquire resources or services for business operations.