A Project Has Average Net Income of $6,250 a Year

Multiple Choice

A project has average net income of $6,250 a year over its 6-year life. The initial cost of the project is $98,400 which will be depreciated using straight-line depreciation to a book value of zero over the life of the project. The firm set a minimum average accounting return of 12.5 percent. The firm should ________ the project because the AAR is ________ percent.

A) accept; 12.52
B) accept; 12.46
C) accept; 12.70
D) reject; 12.46
E) reject; 12.70