Accounting Rate of Return

WeCare Clinic is planning on investing in some new echocardiogram equipment that will require an initial outlay of $$150,000.$ 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: $$74,000,$$$76,000,$$$86,000,$$$88,000,$ and $$101,000.$

Required:

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

Net Income

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

entered as $"16").$

$\%$

What if a second competing revenue$-$producing investment has the same initial outlay and salvage value but the following cash flows

$($in chronological sequence$)$: $$101,000,$$$101,000,$$$101,000,$$$74,000,$ and $$24,000?$ Calculate its accounting rate of return. Enter your

answer as a whole percentage value $($for example, $16\%$ should be entered as $"16").$

$\%$

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?