Average Rate of Return—Cost SavingsMidwest Fabricators Inc. is considering an investment in equipment that will replace direct labor. The equipment has a cost of $96,000 with a $8,000 residual value and a ten-year life. The equipment will replace one employee who has an average wage of $18,140 per year. In addition, the equipment will have operating and energy costs of $4,660 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. Average Rate of Return-Cost SavingsMidwest Fabricators Inc. is considering an investment in equipment that will replace direct labor. The equipment has a cost of $96,000 with a $8,000 residual value and aten-year life. The equipment will replace one employee who has an average wage of $18,140 per year. In addition, the equipment will have operating and energy costs of$4,660 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.%

First, calculate annual depreciation using the SLM method: Annual depreciation=Equipment…

Answered: Average Rate of Return—Cost Savings…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 2E: Average rate of returncost savings Maui Fabricators Inc. is considering an investment in equipment...

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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 $96,000 with a $8,000 residual value and a ten-year life. The equipment will replace one employee who has an average wage of $18,140 per year. In addition, the equipment will have operating and energy costs of $4,660 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.

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 $96,000 with a $8,000 residual value and a
ten-year life. The equipment will replace one employee who has an average wage of $18,140 per year. In addition, the equipment will have operating and energy costs of
$4,660 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.
%

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