Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Accounting Rate of Return

WeCare Clinic is planning on investing in some new echocardiogram equipment that will require an initial outlay of $175,000. 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: $73,000, $74,000, $89,000, $82,000, and $107,000.

Required:

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

Net Income Year 1$ fill in the blankYear 2$ fill in the blank Year 3$ fill in the blank Year 4$ fill in the blank Year 5$ fill in the blank

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

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): $107,000, $107,000, $107,000, $73,000, and $15,500? Calculate its accounting rate of return. Enter your answer as a whole percentage value (for example, 16% should be entered as "16").

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