Average Rate of Return$$Cost Savings

Midwest Fabricators Inc. is considering an investment in equipment that will replace direct labor. The equipment has a cost of $$145,000$ with a $$12,000$ residual value and a five$-$year life. The equipment will replace one employee who has an average wage of $$50,120$ per year. In addition, the equipment will have operating and energy costs of $$14,100$ per year.

Determine the average rate of return on the equipment, giving effect to straight$-$line depreciation on the investment. If required, round to the nearest whole percent.