X Company currently buys 8,000 units of a component part each year from a supplier for $8.50 each, but it is considering making the part instead. In order to make the part, X Company will have to buy equipment that will cost $150,000. The equipment will last for six years, at which time it will have zero disposal value. X Company estimates that it will cost $37,490 a year to make the 8,000 units. What is the approximate rate of return if X Company makes the part instead of buying it from the supplier?
X Company currently buys 8,000 units of a component part each year from a supplier for $8.50 each, but it is considering making the part instead. In order to make the part, X Company will have to buy equipment that will cost $150,000. The equipment will last for six years, at which time it will have zero disposal value. X Company estimates that it will cost $37,490 a year to make the 8,000 units. What is the approximate rate of return if X Company makes the part instead of buying it from the supplier?
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 17EB: Caduceus Company is considering the purchase of a new piece of factory equipment that will cost...
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