Toy Universe 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.

1. Calculate the sandbox toy project's ARR.

2. If the sandbox toy project had a residual value of $150,000 would the ARR change? Explain and recalculate if necessary.

3. Does this investment pass Toy UniverseToy Universe's ARR screening rule?

Year Sandbox toy Toy action figure project project 336,700 $ 550,000 1 2 336,700 340,000 3 336,700 310,000 4. 336,700 275,000 336,700 40,000 5 $ 1,683,500 $ 1,515,000 Total Toy Universe willl consider making capital investments only if payback period of the project is less than 3.5 years and the ARR exceeds 8%