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Annual Net Cash Inflows Year Toy action Sandbox toy figure project project 1. . . . . . . . . . . . .

Annual Net Cash Inflows

Year

Toy action

Sandbox toy

figure project

project

1. . . . . . . . . . . . .

$335,750

$540,000

2. . . . . . . . . . . . .

335,750

390,000

3. . . . . . . . . . . . .

335,750

320,000

4. . . . . . . . . . . . .

335,750

260,000

5. . . . . . . . . . . . .

335,750

30,000

Total

$1,678,750

$1,540,000

Toy TimeToy Time

will consider making capital investments only if the payback period of the project is less than 3.5 years and the ARR exceeds 8%.

Toy TimeToy Time Products is considering producing toy action figures and sandbox toys. The products require different specialized machines, each costing $1 million. Each machine has a five-year life and zero residual value. The two products have different patterns of predicted net cash inflows. LOADING... (Click the icon to view the data.) Calculate the sandbox toy project's ARR. If the sandbox toy project had a residual value of $150,000, would the ARR change? Explain and recalculate if necessary. Does this investment pass Toy TimeToy Time's ARR screening rule? First, enter the formula, then compute the ARR of the sandbox toy project. (Enter amounts in dollars, not millions. Enter your answer as a percent rounded to two decimal places.) Accounting Average annual operating income from asset / Initial investment = rate of return 1000000 / = %

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