Micro Tek Inc. is considering an investment in new equipment that will be used to manufacture a smartphone. The phone is expected to generate additional annual sales of 4,000 units at $450 per unit. The equipment has a cost of $940,000, residual value of $20,000, and an eight-year life. The equipment can only be used to manufacture the phone. The cost to manufacture the phone follows:
Cost per unit:
Direct labor..............................................$ 20
Direct materials..........................................205
Factory overhead (including depreciation)............39
Total cost per unit......................................$264
Determine the average rate of return on the equipment.