The Depot Is Considering a Project with an Initial Cost

question 14

Multiple Choice

The Depot is considering a project with an initial cost for fixed assets of $279,900 and annual sales of $284,000 for four years.The profit margin is 6.72 percent,and the tax rate is 34 percent.The fixed assets will be depreciated straight-line over the life of the project to a zero book value.The required average accounting rate of return is 14.5 percent.Should this project be accepted or rejected? What is the AAR?

• A)Rejected; 14.81%
• B)Rejected; 13.68%
• C)Rejected; 15.03%
• D)Accepted; 14.81%
• E)Accepted; 13.68%

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Definitions:

Setup Costs

Expenses associated with preparing equipment, systems, or processes for a new production run or activity.

Lead Time

The time interval from when an order is placed until it is received and available for use or sale.

MPS

Master Production Schedule, a plan for individual commodities to be produced in each time period, such as production, staffing, inventory.