Show STEPS PLZ!!!!!!!!!!!!!!!! Toyland Products is considering producing toy act

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Show STEPS PLZ!!!!!!!!!!!!!!!!

Toyland 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. (Click the icon to view the data.) Calculate the toy action figure project's ARR. If the toy action figure project had a residual value of $225,000, would the ARR change? Explain and recalculate if necessary. Does this investment pass Toyland's ARR screening rule? First, enter the fonmula, then compute the ARR of the toy action figure project. (Enter amounts in dollars, not millians. Enter your answer as a percent rounded to wo decimal places.) Data Table Average annual operating income from asset Initial Investment - rate of return 121,225 1,000,000 12.12 % If the toy action figure project had a residua value of $225,000, would the ARR change? If the toy action figure project had a $225,000 residual value, the ARR would change The residual value would cause the yearly depreciation expense to decrease. which will cause the average annual operating income from the investment to increase Compute the ARR of the toy action figure project with a residual value of $225,000. (Enter your answer as a percent rounded to two decimal places.) The ARR of the toy action figure project with a residual value of $225.000 i Annual Net Cash Inflows Sandbox toy project Year Toy action figure project 321,225 520,000 350,000 300,000 270,000 25,000 1,606,125 1,465,000 321,225 321,225 321,225 321 225 Tota Toyland will consider making capital investments only if the ARR exce ds 8%. payback period of the project is less than 3.5 years and tha Print Done

Explanation / Answer

> Calculation of ARR , Machine costing $1 million with no residual value

So annual Depriciation= $200,000 Below is table showing calculation of annual accounting income.

So ARR = Annual operating income from asset/Initial Investment

              = $121,255/$1,000,000    = 12.125%

> If machine has salvage value of $225,000.

Then annual depriciation = ($1,000,000-$225,000)/5 = $155,000. Calculation of Accounting income

Average annual Accounting income = $1,056,275/5 = $ 211,255

ARR = $211,255/$1,000,000

        = 21.125%

> Yes, The investment passes the toyland screening data as ARR is more than 8% and payback period is 3. years i.e less than 3.5 years.

Payback period = Initial investment/ Annual cash inflows

Payback period = $1,000,000/ $ 321,255 = 3.11 years

Year Annual Cashinflow toy project $ Annual depriciation $ Annual Accounting income $ 1 321,255 200,000 121,255 2 321,255 200.000 121,255 3 321,255 200,000 121,255 4 321,255 200,000 121,255 5 321,255 200,000 121,255

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