Refer to the Playmore Products Data Set. Calculate the sandbox toy project's ARR. If the sandbox toy

Question:

Refer to the Playmore Products Data Set. Calculate the sandbox toy project's ARR. If the sandbox toy project had a residual value of $175,000, would the ARR change? Explain and recalculate if necessary. Does this investment pass Playmore's ARR screening rule?
Playmore 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:

Annual Net Cash Inflows Toy action figure project $ 312,500 Sandbox toy project $ 518,000 Year 312,500 312,500 340,000 2

Playmore will consider making capital investments only if the payback period of the project is less than 3.5 years and the ARR exceeds 8%.

Payback Period
Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...