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 / = %