Master Fab Inc. is considering an investment in equipment that will replace dire
ID: 2475983 • Letter: M
Question
Master Fab Inc. is considering an investment in equipment that will replace direct labor. The equipment has a cost of $107,000 with a $9,000 residual value and a 10-year life. The equipment will replace one employee who has an average wage of $25,430 per year. In addition, the equipment will have operating and energy costs of $5,190 per year.
Determine the average rate of return on the equipment, giving effect to straight-line depreciation on the investment. If required, round to the nearest whole percent.
Explanation / Answer
depreciation = (107000-9000)/10 9800 average profit per year =(25430-5190-9800) 10440 average investment 10700 ARR 97.57%