Question

average rate of return

Average Rate of Retum-New Product Pocket Pilot Inc is considering an investment in new eu ment that will be used to manufacture a mobile communications device. The device is expected to generate additional annual sales of 4,300 units at $276 per unit. The equipment as a cost of $350,100, residual value of $27. 100, and an eht-year . The ecument can only be used to manufacture the device. The cost to manufacture the device is shown below Cost per unit Direct isbo Direct materials Factory overhead (including deprecation). Total cost per unit Determine the average rate of return on the equipment. If required, round to the nearest whole

Answer 1

Profit per unit = $276 - $260.7 = $15.30 per unit
Total Annual profit = 4300 x $15.30 = $65790

Average Rate of Return = Annual Incremental Profit / Average Investment x 100
= $65790 / $179950 x 100 = 36.56%
Average Investment = ($0+$359900)/2 = $179950

Alternatively
Average Rate of Return = Annual Incremental Profit / Investment x 100
= $65790 / $359900 x 100 = 18.28%