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Average Rate of ReturnNew Product Galactic Inc. is considering an investment in new equipment that will be used to manufacture a smartphone. The phone is
Average Rate of ReturnNew Product
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 3,700 units at $260 per unit. The equipment has a cost of $344,100, residual value of $25,900, 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 | $43.00 | ||
Direct materials | 168.00 | ||
Factory overhead (including depreciation) | 29.50 | ||
Total cost per unit | $240.50 |
Determine the average rate of return on the equipment. If required, round to the nearest whole percent. %
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