Planet corporation acquired 90 percent of saturn company’s voting shares of stock in 20x1. during 20x4, planet purchased 40,000 playday doghouses for $24 each and sold 25,000 of them to saturn for $30 each. saturn sold 18,000 of the doghouses to retail establishments prior to december 31, 20x4, for $45 each. both companies use perpetual inventory systems.

Rate of return douglas keel, a financial analyst for orange industries, wishes to estimate the rate of return for two similar-risk investments, x and y. douglas's research indicates that the immediate past returns will serve as reasonable estimates of future returns. a year earlier, investment x had a market value of $27 comma 000; and investment y had a market value of $46 comma 000. during the year, investment x generated cash flow of $2 comma 025 and investment y generated cash flow of $ 6 comma 770. the current market values of investments x and y are $28 comma 582 and $46 comma 000, respectively. a. calculate the expected rate of return on investments x and y using the most recent year's data. b. assuming that the two investments are equally risky, which one should douglas recommend? why?