Your firm requires an average accounting return (AAR) of at least 15 percent on all fixed asset
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Question:
Your firm requires an average accounting return (AAR) of at least 15 percent on all fixed asset purchases. Currently, you are considering some new equipment costing $96,000. This equipment will have a 3-year life over which time it will be depreciated on a straight line basis to a zero book value at the end. The annual net income from this project is estimated at $8000, $10,800, and $14,200 for the 3 years. Should you accept this project based on the accounting rate of return? Why or why not?
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