Question: Santos Products is considering whether to upgrade its manufacturing equipment
Santos Products is considering whether to upgrade its manufacturing equipment. Managers are considering two options. Equipment manufactured by Swanson costs $ 1,100,000 and will last for four years with no residual value. The Swanson equipment will generate annual operating income of $ 170,500. Equipment manufactured by Poindexter costs $ 1,375,000 and will remain useful for five years. It promises annual operating income of $ 247,500, and its expected residual value is $ 115,000. Which equipment offers the higher ARR?
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