Average rate of return—new product Oahu 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 6,600 units at $270 per unit. The equipment has a cost of $675,200, residual value of $50,800, and an 8-year life. The equipment can only be used to manufacture the phone. The cost to manufacture the phone follows: Line Item Description Amount Cost per unit: Direct labor $45.00 Direct materials 174.00 Factory overhead (including depreciation) 29.55 Total cost per unit $248.55 Determine the average rate of return on the equipment. If required, round to the nearest whole percent.
Average rate of return—new product Oahu 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 6,600 units at $270 per unit. The equipment has a cost of $675,200, residual value of $50,800, and an 8-year life. The equipment can only be used to manufacture the phone. The cost to manufacture the phone follows: Line Item Description Amount Cost per unit: Direct labor $45.00 Direct materials 174.00 Factory overhead (including depreciation) 29.55 Total cost per unit $248.55 Determine the average rate of return on the equipment. If required, round to the nearest whole percent.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Oahu 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 6,600 units at $270 per unit. The equipment has a cost of $675,200, residual value of $50,800, and an 8-year life. The equipment can only be used to manufacture the phone. The cost to manufacture the phone follows:
| Line Item Description | Amount |
|---|---|
| Cost per unit: | |
| Direct labor | $45.00 |
| Direct materials | 174.00 |
| Factory |
29.55 |
| Total cost per unit | $248.55 |
Determine the average rate of return on the equipment. If required, round to the nearest whole percent.
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