Question: Donofrio Products is considering whether to upgrade its equipment. Managers are considering two options. Equipment manufactured by Smith costs $850,000 and will last six years

Donofrio Products is considering whether to upgrade its equipment. Managers are considering two options. Equipment manufactured by Smith costs $850,000 and will last six years and have no residual value. The Smith equipment will generate annual operating income of $161,500. Equipment manufactured by Kyler 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 $100,000.
Which equipment offers the higher ARR?

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