Average Rate of ReturnCost Savings

Midwest Fabricators Inc. is considering an investment in equipment that will replace direct labor. The equipment has a cost of $84,000 with a $7,000 residual value and a ten-year life. The equipment will replace one employee who has an average wage of $16,330 per year. In addition, the equipment will have operating and energy costs of $4,080 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.

1. EX.26-02.ALGO (Algorithmic) eBook 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 $84,000 with a $7,000 residual value and a ten-year life. The equipment will replace one employee who has an average wage of $16,330 per year. In addition, the equipment will have operating and energy costs of $4,080 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. 2. EX.26-05.AL GO (Algorithmic) eBook Show Me How Cash payback period for a Service Company Prime Financial Inc. is evaluating two capital investment proposals for a drive-up ATM kiosk, each requiring an investment of $180,000 and each with an eight-year life and expected total net cash flows of $360,000. Location 1 is expected to provide equal annual net cash flows of $45,000, and Location 2 is expected to have the following unequal annual net cash flows Year 1 81,000 Year 2 Year 3 Year 4 61,000 38,000 58,000 Year 5 Year 6 Year 7 Year 8 $43,000 32,000 25,000 22,000 Determine the cash payback perlod for both location proposals. Location 1 years Location 2 years