The Drive-Thru Requires an Average Accounting Return (AAR) of at Least

Multiple Choice

The Drive-Thru requires an average accounting return (AAR) of at least 17 percent on all fixed asset purchases. Currently, it is considering some new equipment costing $168,000. This equipment will have a 4-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 $8,100, $10,300, $17,900, and $19,600 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 percent
B) Yes; because the AAR is equal to 17 percent
C) Yes; because the AAR is greater than 17 percent
D) No; because the AAR is less than 17 percent
E) No; because the AAR is greater than 17 percent