- average rate of return?cost savings midwest fabricators inc. is considering an investment in equipment that will replace direct labor. the equipment has a cost of $108,000 with a $9,000 residual value and a five-year life. the equipment will replace one employee who has an average wage of $41,405 per year. in addition, the equipment will have operating and energy costs of $10,490 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. % 2. average rate of return?new product galactic inc. is considering an investment in new equipment that will be used to manufacture
1. What is the average rate of return for Midwest Fabricators Inc.'s investment in equipment?
To determine the average rate of return on the equipment investment, we first need to calculate the annual cost savings. The cost of the equipment is $108,000, with a residual value of $9,000, and it has a five-year life.
Annual cost savings can be calculated by subtracting the operating and energy costs of $10,490 from the amount of wages saved by replacing the employee. The average wage of the employee is $41,405 per year.
Annual cost savings = Wage savings - Operating costs
= $41,405 - $10,490
= $30,915
Next, we need to determine the total investment, which includes the initial cost of the equipment and depreciation over its useful life.
Total investment = Initial cost - Residual value
= $108,000 - $9,000
= $99,000
Now we can calculate the average rate of return using the formula:
Average rate of return = (Annual cost savings / Total investment) * 100
Average rate of return = ($30,915 / $99,000) * 100
= 31.19%
Therefore, the average rate of return on Midwest Fabricators Inc.'s investment in equipment is approximately 31.19%, rounded to the nearest whole percent.
2. What is the average rate of return for Galactic Inc.'s investment in new equipment for manufacturing a new product?
To calculate the average rate of return for Galactic Inc.'s investment in new equipment, we would need more specific information about the costs and benefits associated with the investment. Without additional data, it is not possible to determine the average rate of return for this particular scenario.
If you provide more information about the costs, revenues, and expected savings associated with the investment in new equipment, I would be happy to assist you further in calculating the average rate of return.