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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Question
![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?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F4b23beb6-04f1-448e-9754-3c9e61a69847%2F533b6af8-c53c-444f-b586-20d757d66a5f%2F9if0kt_processed.png&w=3840&q=75)
Transcribed Image Text: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?
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