Question: Espinosa Industries is considering an investment in equipment that will replace direct labor. The equipment has a cost of $615,000 with a $75,000 residual value

Espinosa Industries is considering an investment in equipment that will replace direct labor. The equipment has a cost of $615,000 with a $75,000 residual value and a 10-year life. The equipment will replace one employee who has an average wage of $134,100 per year. In addition, the equipment will have operating and energy costs of $18,000 per year.

Determine the average rate of return on the equipment, giving effect to straight-line depreciation on the investment.

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