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:

Consolidated Financial Statements

These are financial statements that aggregate the financial position and operations of a parent company and its subsidiaries, providing a comprehensive overview as if the group were a single entity.

Subsidiary

A company that is completely or partially owned and controlled by another company, known as the parent company.

Fair Value

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Parent-Company Extension Method

An accounting approach used in consolidation, where the parent company's financial statements extend to include the subsidiary's transactions and balances.