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:

Periodic Inventory System

An inventory accounting system where stock levels are updated at regular intervals, not continuously.

Gross Profit

Gross profit is the difference between sales revenue and the cost of goods sold, indicating how efficiently a company is producing or sourcing its products.

Income Statement

A financial statement that reports a company's financial performance over a specific accounting period, showing revenue, expenses, and net income.

Perpetual Inventory System

A procedural method in inventory accounting that directly records every inventory sale or purchase with the aid of computerized point-of-sale systems and enterprise asset management software.