Micro Tek 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 4,100 units at $308 per unit. The equipment has a cost of $343,200, residual value of $25,800, 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 $52.00 Direct materials 204.00 Factory overhead (including depreciation) 34.90 Total cost per unit $290.90 Determine the average rate of return on the equipment. If required, round to the nearest whole percent. %

Micro Tek 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 4,100 units at $308 per unit. The equipment has a cost of $343,200, residual value of $25,800, 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 $52.00 Direct materials 204.00 Factory overhead (including depreciation) 34.90 Total cost per unit $290.90 Determine the average rate of return on the equipment. If required, round to the nearest whole percent. %

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 3E: Average rate of returnnew product Hana Inc. is considering an investment in new equipment that will...

See similar textbooks

Similar questions

Flanders Manufacturing is considering purchasing a new machine that will reduce variable costs per part produced by $0.15. The machine will increase fixed costs by $18,250 per year. The information they will use to consider these changes is shown here.
Caduceus Company is considering the purchase of a new piece of factory equipment that will cost $565,000 and will generate $135,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return In Excel, see Appendix C.
Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: The system will cost 9,000,000 and last 10 years. The companys cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects with a payback of five years or less. Would the system be acquired? 2. Calculate the NPV and IRR for the project. Should the system be purchasedeven if it does not meet the payback criterion? 3. The project manager reviewed the projected cash flows and pointed out that two items had been missed. First, the system would have a salvage value, net of any tax effects, of 1,000,000 at the end of 10 years. Second, the increased quality and delivery performance would allow the company to increase its market share by 20 percent. This would produce an additional annual net benefit of 300,000. Recalculate the payback period, NPV, and IRR given this new information. (For the IRR computation, initially ignore salvage value.) Does the decision change? Suppose that the salvage value is only half what is projected. Does this make a difference in the outcome? Does salvage value have any real bearing on the companys decision?
Gardner Denver Company is considering the purchase of a new piece of factory equipment that will cost $420,000 and will generate $95,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further Instructions on internal rate of return in Excel, see Appendix C.
Shonda & Shonda is a company that does land surveys and engineering consulting. They have an opportunity to purchase new computer equipment that will allow them to render their drawings and surveys much more quickly. The new equipment will cost them an additional $1.200 per month, but they will be able to increase their sales by 10% per year. Their current annual cost and break-even figures are as follows: A. What will be the impact on the break-even point if Shonda & Shonda purchases the new computer? B. What will be the impact on net operating income if Shonda & Shonda purchases the new computer? C. What would be your recommendation to Shonda & Shonda regarding this purchase?
Average rate of returncost savings Maui Fabricators Inc. is considering an investment in equipment that will replace direct labor. The equipment has a cost of 125,000 with a 15,000 residual value and an eight-year life. The equipment will replace one employee who has an average wage of 28,000 per year. In addition, the equipment will have operating and energy costs of 5,150 per year. Determine the average rate of return on the equipment, giving effect to straight-line depreciation on the investment.
Show Me How Print Item 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 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 Factory overhead (including depreciation) Total cost per unit Determine the average rate of return on the equipment. % $5 35 10 $50
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 7,200 units at $254 per unit. The equipment has a cost of $803,500, residual value of $60,500, 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 Factory overhead (including depreciation) Total cost per unit $43.00 168.00 28.60 $239.60 Determine the average rate of return on the equipment. If required, round to the nearest whole percent. %
Average Rate of Return-New Product Hana 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 4,300 units at $319 per unit. The equipment has a cost of $399,900, residual value of $30,100, 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 $54.00 Direct materials 209.00 Factory overhead (including depreciation) 35.50 Total cost per unit $298.50 Determine the average rate of return on the equipment. If required, round to the nearest whole percent. %. please answer do not image.
Average rate of return-new product Hana Inc.is considering an invetment in new equipment that will be used to manufacture a smart-phone.The phone is expected to generate additional annual sales of 10,000 units at $300 per unit. The equipment has a cost of $ 4,500,000,residual value of $500,000,and a 10-year life.The equipment can only be used to manufacture the phone.The cost to manufacture the phone follows: Determine the average rate of return on the equipment.
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.fill in the blank 1 of 1 %