An Investment Has an Initial Cost of $420,000 and Will

question 1

Multiple Choice

An investment has an initial cost of $420,000 and will generate the net income amounts shown below.This investment will be depreciated straight-line to zero over the four-year life of the project.Should this project be accepted based on the average accounting rate of return if the required rate is 16 percent? Why or why not?

• A)Yes, because the AAR is equal to 16 percent
• B)Yes, because the AAR is greater than 16 percent
• C)Yes, because the AAR is less than 16 percent
• D)No, because the AAR is greater than 16 percent
• E)No, because the AAR is less than 16 percent

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Definitions:

College Graduates

Individuals who have completed a college-level education, earning an associate degree, bachelor's degree, or higher.

Risk Neutral

Condition of being indifferent between a certain income and an uncertain income with the same expected value.

Business Success

The achievement of financial and operational goals within a business, often measured by profitability, market share, or other performance indicators.

Expected Net Revenue

Expected net revenue is the anticipated profit calculated by subtracting expected costs from expected total revenue.