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 4,100 units at $319 per unit. The equipment has a cost of $457,600, residual value of $34,400, 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:|
|Factory overhead (including depreciation)||35.6|
|Total cost per unit||$298.6|
Determine the average rate of return on the equipment. If required, round to the nearest whole percent.