Garcia Company can invest in one of two alternative projects. Project Y requires a $435,000 initial investment for new machinery with a four-year life and no salvage value. Project Z requires a $486,000 initial investment for new machinery with a three-year life and no salvage value. The two projects yield the following annual results. Cash flows occur evenly within each year. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Annual Amounts Sales of new product Expenses Materials, labor, and overhead (except depreciation) Depreciation-Machinery Selling, general, and administrative expenses Income Project Y Project Z $ 485,000 $ 464,000 204,000 230,000 108,750 65,000 $ 81,250 162,000 52,000 $ 46,000 Compute each project's accounting rate of return. If the company bases investment decisions solely on accounting rate of return, which project will it choose? Accounting Rate of Return Numerator: Denominator: Annual income 1 Average investment Accounting rate of return Project Y $ 81,250 / $ 435,000 = 18.7 % Project Z $ 46,000 1 $ 486,000 = 9.5 % If the company bases investment decisions solely on accounting rate of return, which project will it choose? Project Y