Golf Products is considering whether to upgrade its equipment. Managers are cons

Question

Golf Products is considering whether to upgrade its equipment. Managers are considering two options. Equipment manufactured by Atlas Inc. costs $900,000 and will last five years and have no residual value. The Atlas equipment will generate annual operating income of $153,000. Equipment manufactured by Riverside Limited costs $1,320,000 and will remain useful for six years. It promises annual operating income of $231,000, and its expected residual value a $115,000.

Which equipment offers the higher ARR?

First, enter the formula, then calculate the ARR (Accounting Rate of Return) for both pieces of equipment. (Enter the answer as a percent rounded to the nearest tenth percent.)

1st ____________(/)__________= Accounting rate of return

3 parts remaining....

Explanation / Answer

Ans: ARR= Average Net Income / Average Investment

     Equipment manufactured by Atlas Inc:

           ARR: Average Net Income = $ 153000

                       Average Investment= $ 900000

                 ARR= $ 153000/900000

                        = 17%

Equipment manufactured by Riverside Limited:

ARR: Average Net Income = $ 231000

                       Average Investment= $ 1320000

                 ARR= $ 153000/900000

                        = 17.50%

Equipment manufactured by Riverside Limited offers the Higher ARR.

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