Airwave Communications Inc. is considering an investment in new equipment that will be used to manufacture a
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Airwave Communications Inc. is considering an investment in new equipment that will be used to manufacture a PDA (personal data assistant). The PDA is expected to generate additional annual sales of 4,800 units at $350 per unit. The equipment has a cost of $910,000, residual value of $50,000, and a 10-year life. The equipment can only be used to manufacture the PDA. The cost to manufacture the PDA is shown below.
Cost per unit:
Direct labor ............. $ 52.00
Direct materials ........... 195.00
Factory overhead (including depreciation) . 58.00
Total cost per unit ........... $305.00
Determine the average rate of return on the equipment.
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