Concept explainers
Suppose Francine Dunkelberg’s Sweets is considering investing in warehouse-management software that costs $550,000, has $75,000 residual value, and should lead to cost savings of $130,000 per year for its five-year life. In calculating the ARR, which of the following figures should be used as the equation’s denominator (average amount invested in the asset)?
- a. $275,000
- b. $237,500
- c. $625,000
- d. $312,500
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