Question 1

Sunrise Golf Products is considering whether to upgrade its equipment. Managers are considering two options. Equipment manufactured by Richland Inc. costs $000,000 and will last six years and have no residual value. The Richland equipment will generate annual operating income of $155,000. Equipment manufactured by Lakeside Limited costs $1,200,000 and will remain useful for seven years. It promises annual operating income of $233,300, and its expected residual value is $1 15.000. Which equipment offers the higher ARR? First, enter the formulaI then calculate the ARR [Accounting Rate of Retum) for both pieces of equipment. (Enter the answer as a percent rounded to the nearest tenth percent.) Accounting Average annual operating income from asset .r Initial investment = rate 01 return Riohland i 5 300.000 = $6