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Determine the average rate of return on the equipment

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Average Rate of Return-Cost Savings

Master Fab Inc. is considering an investment in equipment that will replace direct labor. The equipment has a cost of $103,000 with a $9,000 residual value and a five-year life. The equipment will replace one employee who has an average wage of $39,960 per year. In addition, the equipment will have operating and energy costs of $9,960 per year.

Determine the average rate of return on the equipment, giving effect to straight-line depreciation on the investment. If required, round to the nearest whole percent.

Reference no: EM131641927

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