Pocket Communications Inc. is considering an investment in new equipment that will be used to manufacture a PDA (personal data assistant). The PDA is expected to generate additional annual sales of 4,500 units at $325 per unit. The equipment has a cost of $870,000, residual value of $30,000, and a 10-year life. The equipment can only be used to manufacture the PDA. The cost to manufacture the PDA is shown below.

Cost per unit:

Direct labor ...............$ 42.00

Direct materials .............. 195.00

Factory overhead (including depreciation)... 58.00

Total cost per unit ............. $295.00

Determine the average rate of return on the equipment.