An Investment Has an Initial Cost of $2

Multiple Choice

An investment has an initial cost of $2.7 million and net income of $189,400, $178,600, and $172,500 for Years 1 to 3.This investment will be depreciated by $900,000 a year over the three-year life of the project.Should this project be accepted based on the average accounting rate of return if the required rate is 12.5 percent? Why or why not?

A) Yes, because the AAR is 12.5 percent
B) Yes, because the AAR is less than 12.5 percent
C) Yes, because the AAR is greater than 12.5 percent
D) No, because the AAR is greater than 12.5 percent
E) No, because the AAR is less than 12.5 percent