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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Average rate of return—new product

Arrowhead Inc. is considering an investment in new equipment that will be used to manufacture a mobile communications product. The product is expected to generate additionalannual sales of 24,000 units at $400 per unit. 11w equipment has a cost of $27,000.000,residual value of $1.800,000, and a 10-year life. The equipment only can be used to manufacture the product. The cost to manufacture the product is shown below.

Determine the average rate of return on the equipment.

To determine

Concept introduction:

Average rate of return:

The average rate of return is the method to determine average income over the period in regard to the investment made in that period.

To compute:

The average rate of return on the equipment.

Explanation

A Inc.

  (Amount in $)

    ParticularsFormula
    Average value of investment  Amount Investment+Residual Value2  14,400,000( 27,000,000+1,800,000<

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