Galactic Inc. is considering an investment in new equipment that will be used to manufacture a smart phone. The phone is expected to generate additional annual sales of 6,000 units at $250 per unit. The equipment has a cost of $850,000, residual value of $50,000, and an eight-year life. The equipment can only be used to manufacture the phone. The cost to manufacture the phone follows:
Cost per unit:
Direct labor........................................................... $ 15.00
Direct materials...................................................... 134.00
Factory overhead (including depreciation)...................... 33.50
Total cost per unit................................................... $182.50
Determine the average rate of return on the equipment.