Situation:

You are deciding to start a delivery business in January 2021. The initial investment includes a small truck which costs $70,000. Other expenses were included in the expected cash flows. The truck has a useful life of 5 years and an estimated residual value at the end of the 5^th year of $10,000 (the amount expected the truck can be sold). Depreciation is the only non-cash expense.

The net cash flows of each year in the following 5 years are estimated as follows:

Initial investment:$70,000

Net cash flow year 1:(20,000)

Net cash flow year 2:10,000

Net cash flow year 3:20,000

Net cash flow year 4:40,000

Net cash flow year 5:30,000

Estimated sale of truck year 5:10,000

Question

1) If your required rate of return is 8%, what would be your decision based on the accounting rate of return (ARR)?