Accounting Rate of Return

WeCare Clinic is planning on investing in some new echocardiogram equipment that will require an initial outlay of $$155,000.$ The system has an expected life of five years and no expected salvage value. The investment is expected to produce the following net cash flows over its life: $$77,000,$ $$83,000,$ $$86,000,$ $$84,000,$ and $$92,000.$

Required:

$1.$ Calculate the annual net income for each of the five years.

Net Income

Year $1$ $fill in the blank $1$

$46,000$

Year $2$ $fill in the blank $2$

$52,000$

Year $3$ $fill in the blank $3$

$55,000$

Year $4$ $fill in the blank $4$

$53,000$

Year $5$ $fill in the blank $5$

$61,000$

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

fill in the blank $6$

$\%$

$3.$ What if a second competing revenue$-$producing investment has the same initial outlay and salvage value but the following cash flows $($in chronological sequence$)$: $$92,000,$ $$92,000,$ $$92,000,$ $$77,000,$ and $$34,500?$ Calculate its accounting rate of return. Enter your answer as a whole percentage value $($for example, $16\%$ should be entered as $"16").$

fill in the blank $7$

$\%$

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

First project

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

It returns larger amounts of cash sooner than the first project