A retailer is considering whether to invest in a warehouse routing system that costs $1,200,000, has a $100,000 residual value, and should lead to cost savings of $275,000 per year for its five-year life. In calculating the accounting rate of return (ARR), which of the following numbers should be used as the ARR equation’s denominator?
a. $100,000

b. $280,000

c. $1,100,000

d. $1,200,000