Average Rate of Return—New Product
Pocket Pilot Inc. is considering an investment in new equipment that will be used to manufacture a mobile communications device. The device is expected to generate additional annual sales of 6,800 units at $307.00 per unit. The equipment has a cost of $632,400, residual value of $47,600, and an eight-year life. The equipment can only be used to manufacture the device. The cost to manufacture the device is shown below.
Cost per unit:
Direct labor $52.00
Direct materials 201.00
Factory overhead (including depreciation) 34.00
Total cost per unit $287.00
Determine the average rate of return on the equipment. If required, round to the nearest whole percent.
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