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Santos Golf Products is considering whether to upgrade its equipment. Managers are considering two options. Equipment manufactured by Vargas Inc. costs $900,000 and will last

Santos

Golf Products is considering whether to upgrade its equipment. Managers are considering two options. Equipment manufactured by

Vargas

Inc. costs

$900,000

and will last

six

years and have no residual value. The

Vargas

equipment will generate annual operating income of

$153,000.

Equipment manufactured by

Riverbank

Limited costs

$1,375,000

and will remain useful for

seven

years. It promises annual operating income of

$247,500,

and its expected residual value is

$105,000.

Which equipment offers the higher ARR?

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