A Project Has Average Net Income of $5,600 a Year

question 57

Multiple Choice

A project has average net income of $5,600 a year over its 6-year life. The initial cost of the project is $98,000 which will be depreciated using straight-line depreciation to a book value of zero over the life of the project. The firm wants to earn a minimum average accounting return of 11.5 percent. The firm should _____ the project because the AAR is _____ percent.

• A)accept; 5.71
• B)accept; 9.90
• C)accept; 11.43
• D)reject; 5.71
• E)reject; 11.43

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Definitions:

Primacy Effect

The tendency to remember and give more weight to information that we encounter first in a list or presentation.

Impression Formation

The process by which individuals integrate various pieces of information about another person to form a global impression of them.

Social Loafing

A situation in which people put in less effort towards reaching a goal when they are part of a group compared to when they are working solo.

Conformity

is the behavioral change to align with the norms or standards of a group, often influenced by peer pressure or the desire to fit in.