WeCare Clinic is planning on investing in some new echocardiogram equipment that will require an initial outlay

Question:

WeCare Clinic is planning on investing in some new echocardiogram equipment that will require an initial outlay of $170,000. The system has an expected life of five years and no expected . The investment is expected to produce the following net cash flows over its life: $68,000, $68,000, $85,000, $85,000, and $102,000.
Required:
1. Calculate the annual net income for each of the five years.
2. Calculate the accounting rate of return.
3. What if a second competing revenue-producing investment has the same initial outlay and but the following cash flows (in chronological sequence): $102,000, $102,000, $102,000, $68,000, and $17,000? Using the accounting rate of return metric, which project should be selected: the first or the second? Which project is really the better of the two?
Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...