A Project Has Average Net Income of $5,600 a Year

Multiple Choice

A project has average net income of $5,600 a year over its 6-year life. The initial cost of the project is $98,000 which will be depreciated using straight-line depreciation to a book value of zero over the life of the project. The firm wants to earn a minimum average accounting return of 11.5 percent. The firm should _____ the project because the AAR is _____ percent.

A) accept; 5.71
B) accept; 9.90
C) accept; 11.43
D) reject; 5.71
E) reject; 11.43