nual 000 EX 12-3 Average rate of return-new product Obj. 2 Oahu Inc. is considering an investment in new equipment that will be used to manufacture a smart- phone. The phone is expected to generate additional annual sales of 40,000 units at $80 per unit. The equipment has a cost of $7,400,000, residual value of $600,000, and an 8-year life. The equipment can only be used to manufacture the phone. The cost to manufacture the phone follows: Cost per unit: Direct labor Direct materials $ 5 35 Factory overhead (including depreciation) 10 $50 Total cost per unit Determine the average rate of return on the equipment.