=+E15-2 Average rate ofreturn—

cost savings Ob] 2 International Fabricators Inc. is considering an investment in equipment that will replace direct labor. The equipment has a cost of $85,000, with a $5,000 residual value and a 10-year life. The equipment will replace one employee who has an average wage of $23,000 per year. In addition, the equipment will have operating and energy costs of $6,000 per year.

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