CEX. $19\mathrm{.}02.$ALGO

Accounting Rate of Return

WeCare Clinic is planning on investing in some new echocardiogram equipment that will require an initial outlay of $$140,000.$ The system has an expected life of five years and no expected salvage value. The investment is expected to produce the following net cash flows over its life: $$74,000,$$$71,000,$$$93,000,$$$85,000,$ and $$106,000.$

Required:

Calculate the annual net income for each of the five years.

Net Income

Year $1$

Year $2,$$ $$

$$

Year $3$

$ $$

Year $4$

$ $|v|$

Year $5$

$ $$

$2.$ Calculate the accounting rate of return. Enter your answer as a whole percentage value $($for example, $16\%$ should be entered as $"16").$

$q,\%$

$3.$ What if a second competing revenue$-$producing investment has the same initial outlay and salvage value but the following cash flows $($in chronological sequence$)$: $$106,000,$$$106,000,$ $$106,000,$$$74,000,$ and $$18,500?$ Calculate its accounting rate of return. Enter your answer as a whole percentage value $($for example, $16\%$ should be entered as $"16").q,x\%$

Using the accounting rate of return metric, which project should be selected: the first or the second?

Why might the second project be preferred over the first project?