Annual Net Cash Inflows
Year	Toy action	Sandbox toy
	figure project	project
1. . . . . . . . . . . . .	$343,000	$550,000
2. . . . . . . . . . . . .	343,000	370,000
3. . . . . . . . . . . . .	343,000	320,000
4. . . . . . . . . . . . .	343,000	250,000
5. . . . . . . . . . . . .	343,000	25,000
Total	$1,715,000	$1,515,000

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

Products is considering producing toy action figures and sandbox toys. The products require different specialized machines, each costing $1.1 million. Each machine has afive-year life and zero residual value. The two products have different patterns of predicted net cash inflows.Calculate the toy action figure project's ARR. If the toy action figure project had a residual value of

$125,000,would the ARR change? Explain and recalculate if necessary. Does this investment pass PlaytimePlaytime's ARR screening rule?

First, enter the formula, then compute the ARR of the toy action figure 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

/

1100000

=

%