=+EX 26-1 Average rate of return obj. 2

✔ Testing equipment, 5.5%

Master Fab Inc. is considering an investment in equipment that will replace direct labor.

The equipment has a cost of $115,000 with a $10,000 residual value and a 10-year life.

The equipment will replace one employee who has an average wage of $26,000 per year.

In addition, the equipment will have operating and energy costs of $5,500 per year.

Determine the average rate of return on the equipment, giving effect to straight-line depreciation on the investment.