# Toy Universe Products is considering producing toy action figures and sandbox toys. The products require different...

###### Question:

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%

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