An Investment Has an Initial Cost of $300,000 and a Life

question 45

Multiple Choice

An investment has an initial cost of $300,000 and a life of four years.This investment will be depreciated by $60,000 a year and will generate the net income shown below.Should this project be accepted based on the average accounting rate of return (AAR) if the required rate is 9.5 percent? Why or why not?

• A)Yes, because the AAR less than 9.5 percent
• B)Yes, because the AAR is 9.5 percent
• C)Yes, because the AAR is greater than 9.5 percent
• D)No, because the AAR is 9.5 percent
• E)No, because the AAR is greater than 9.5 percent

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Definitions:

Hill-climbing

A mathematical optimization technique that involves iterative progress toward a solution or goal by incrementally improving from the current state.

Heuristics

Mental shortcuts or rules of thumb that simplify decision-making processes, often leading to quicker but sometimes less accurate judgments.

Vocabulary

The set of words known and used by a person in a language.

Functional Fixedness

A cognitive bias that limits a person to using an object only in the way it is traditionally used, hindering problem-solving and creativity.