Average rate of return—new product OBJ. 2 Galactic Inc. is considering an investment in new equipment that will be used to manufacture a smartphone. The phone is expected to generate additional annual sales of 6,000 units at $250 per unit. The equipment has a cost of $850,000, residual value of $50,000, and an eight-year life. The equipment can only be used to manufacture the phone. The cost to manufacture the phone follows:

Cost per unit:

Direct labor $ 15.00 Direct materials 134.00 Factory overhead (including depreciation) 33.50 Total cost per unit $182.50 Determine the average rate of return on the equipment.