The Green Fiddle Is Considering a Project That Will Produce

question 82

Multiple Choice

The Green Fiddle is considering a project that will produce sales of $87,000 a year for the next 4 years.The profit margin is estimated at 6 percent.The project will cost $90,000 and will be depreciated straight-line to a book value of zero over the life of the project.The firm has a required accounting return of 11 percent.This project should be _____ because the AAR is _____ percent.

• A)rejected; 10.03
• B)rejected; 10.25
• C)rejected; 11.60
• D)accepted; 10.25
• E)accepted; 11.60

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Definitions:

Total Float

The amount of time that a project task can be delayed without causing a delay to subsequent tasks or the project's completion date.

Net Collection Float

The difference between check deposits recorded in the book balance and the amount of checks that have actually been cleared or credited to the bank account.

Outstanding Cheques

Cheques issued by a company that have not been deposited or cashed by the recipient by the end of the accounting period.

Liquidity

The ease with which an asset can be converted into cash without significantly affecting its price, reflecting the ability of a company or individual to meet immediate and short-term obligations.