Miguel Products is considering whether to upgrade its manufacturing equipment. Managers are considering two options. Equipment manufactured
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Miguel Products is considering whether to upgrade its manufacturing equipment. Managers are considering two options. Equipment manufactured by McKnight costs $940,000 and will last for four years with no residual value. The McKnight equipment will generate annual operating income of $141,000. Equipment manufactured by Logan costs $1,125,000 and will remain useful for five years. It promises annual operating income of $236,250, and its expected residual value is $105,000. Which equipment offers the higher ARR?
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