The Paper Euphoria Co

Multiple Choice

The Paper Euphoria Co. (PEC) has received several similar new machine investment proposals from its branches across Canada. In general the data are: cost of the new machine is $200,000; residual value after five years is $40,000; economic life is 10 years; average annual profit before depreciation is $48,000. PEC only uses the ARR to measure investment success and requires an ARR of at least 27.5%. Which of the following actions would result in the project being accepted by PEC?

A) Changing nothing from the data given and accepting the investment as is.
B) Giving away the machine after ten years instead of selling it.
C) Using the machine for seven years instead of 10.
D) Paying only $199,000 for the new machine instead of $200,000.
E) Increasing annual profit before depreciation to 48,500 instead of $48,000.