The Green Fiddle Is Considering a Project with Sales of $86,800

question 6

Multiple Choice

The Green Fiddle is considering a project with sales of $86,800 a year for the next four years. The profit margin is 6 percent, the project cost is $97,500, and depreciation is straight-line to a zero book value over the life of the project. The required accounting return is 10.8 percent. This project should be ________ because the AAR is ________ percent.

• A) rejected; 11.03
• B) accepted; 10.68
• C) rejected; 11.16
• D) accepted; 11.03
• E) rejected; 10.68

---

Definitions:

Return on Equity

Return on Equity (ROE) measures a company's profitability by revealing how much profit a company generates with the money shareholders have invested.

Net Income

This is the amount of earnings left after all expenses and taxes have been subtracted from revenue.

Average Common Stockholders' Equity

A financial metric calculated as the average equity held by common stockholders over a period, typically used in performance analysis.

Return on Equity

A measure of financial performance calculated by dividing net income by shareholder equity, indicating how effectively a company uses invested capital to generate profit.