Playtime 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.

	Annual Net Cash Inflows
Year	Toy action	Sandbox toy
	figure project	project
1. . . . . . . . . . . . . . .	$343,000	$550,000
2. . . . . . . . . . . . . . .	343,000	360,000
3. . . . . . . . . . . . . . .	343,000	310,000
4. . . . . . . . . . . . . . .	343,000	230,000
5. . . . . . . . . . . . . . .	343,000	50,000
Total	$1,715,000	$1,500,000

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

Calculate the sandbox toy project's ARR. If the sandbox toy project had a residual value of $225,000, would the ARR change? Explain and recalculate if necessary. Does this investment pass Playtime's ARR screening rule?