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Consider the previous question with the following details: A company is considering a project that will last for 4 years with no residual value. The project has the following cash flows and details: Period 0: Cash flow = -$165,000 (Cost of project) Period 1: Cash flow = $85,000, Net Income = $47,500 Period 2: Cash flow = $66,000, Net Income = $28,500 Period 3: Cash flow = $50,000, Net Income = $12,500 Period 4: Cash flow = $50,000, Net Income = $12,500 Average Book Value = $75,000 The required annual return on projects of this risk is 8%. The company is trying to determine whether or not to accept this project. They use the average accounting return (AAR) method of evaluation and their decision rule is that they will proceed with the project if the AAR is at least 30%. True or False: Based on their evaluation method and decision rule, they SHOULD accept this project. True O False Consider the previous question with the following details: A company is considering a project that will last for 4 years with no residual value. The project has the following cash flows and details: Period 0: Cash flow = -$165,000 (Cost of project) Period 1: Cash flow = $85,000, Net Income = $47,500 Period 2: Cash flow = $66,000, Net Income = $28,500 Period 3: Cash flow = $50,000, Net Income = $12,500 Period 4: Cash flow = $50,000, Net Income = $12,500 Average Book Value = $75,000 The required annual return on projects of this risk is 8%. The company is trying to determine whether or not to accept this project. They use the average accounting return (AAR) method of evaluation and their decision rule is that they will proceed with the project if the AAR is at least 30%. True or False: Based on their evaluation method and decision rule, they SHOULD accept this project. True O False
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Related Book For
Fundamentals of Corporate Finance
ISBN: 978-0071051606
8th Canadian Edition
Authors: Stephen A. Ross, Randolph W. Westerfield
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