Arrowhead Inc. is considering an investment in new equipment that will be used to manufacture a mobile communications product. The product is expected to generate additional annual sales of 24,000 units at $400 per unit. The equipment has a cost of $27,000,000, residual value of $1,800,000, and a 10-year life. The equipment only can be used to manufacture the product. The cost to manufacture the product is shown on the next page.
Cost per unit:
Direct labor .............. $ 40.00
Direct materials ............. 60.00
Factory overhead (including depreciation) . 120.00
Total cost per unit ............ $220.00

Determine the average rate of return on the equipment.

  • CreatedFebruary 04, 2014
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