Woodcrafters Requires an Average Accounting Return (AAR) of at Least

question 34

Multiple Choice

Woodcrafters requires an average accounting return (AAR) of at least 17.5 percent on all fixed asset purchases.Currently, it is considering some new equipment costing $169,700.This equipment will have a four-year life over which time it will be depreciated on a straight-line basis to a zero book value.The annual net income from this equipment is estimated at $7,100, $13,300, $18,600, and $19,200 for the four years.Should this purchase occur based on the accounting rate of return? Why or why not?

• A)Yes; because the AAR is less than 17.5 percent
• B)Yes; because the AAR is equal to 17.5 percent
• C)Yes; because the AAR is greater than 17.5 percent
• D)No; because the AAR is less than 17.5 percent
• E)No; because the AAR is greater than 17.5 percent

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Definitions:

Right Ventricle

The chamber of the heart that receives deoxygenated blood from the right atrium and pumps it into the pulmonary artery toward the lungs for oxygenation.

Ductus Arteriosus

A fetal blood vessel that connects the pulmonary artery to the aorta, allowing blood to bypass the lungs in utero, which normally closes shortly after birth.

Descending Abdominal Aorta

A part of the aorta that runs down through the abdomen, supplying oxygenated blood to abdominal organs.