McAfee Automobiles Manufacturing is considering two alternative investment proposals with the following data

Proposal X Proposal Y
Investment $10,500,000 $500,000
Useful life 5 years 5 years
Estimated annual net cash inflows for 5 years $2,100,000 $105,000
Residual value $52,000 $32,000
Depreciation method Straight-line Straight-line
Required rate of return 13% 12%

Calculate the accounting rate of return for Proposal Y. (Round any intermediate calculations and your final answer to two decimal places.)
A) 13.87%
B) 12.63%
C) 4.29%
D) 9.52%

C .C)
Calculation of accounting rate of return:

Proposal Y
Total net cash inflows during operating life of the $525,000
asset ($105,000 per year x 5 years)
Less: Total depreciation during operating life of the
asset (500,000 - 32,000 ) 468,000
Total operating income during operating life 57,000
Divide by: Asset's operating life in years / 5
Average annual operating income from asset 11,400
Average amount invested [(500,000 + 32,000 ) / 2] $266,000.00

ARR of Proposal Y = Average annual operating income / Average amount invested
ARR = $11,400 / $266,000.00 = 4.29%