Oahu 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 40,000 units at $80 per unit. The equipment has a cost of $7,400,000, residual value of $600,000, and an 8-year life. The equipment can only be used to manufacture the phone. The cost to manufacture the phone follows:

    

Determine the average rate of return on the equipment.

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Cost per unit: Direct labor Direct materials Factory overhead (including depreciation) Total cost per unit $5 35 10 $50