EX $12-2$ Average rate of return$-$cost savings

Maui Fabricators Inc. is considering an investment in equipment that will replace direct labor. The

equipment has a cost of $$125,000$ with a $$15,000$ residual value and an $8-$year life. The equip$-$

ment will replace one employee who has an average wage of $$28,000$ per year. In addition, the

equipment will have operating and energy costs of $$5,150$ per year.

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

on the investment.