X Company currently buys 6,000 units of a component part each year from a suppli
ID: 2452425 • Letter: X
Question
X Company currently buys 6,000 units of a component part each year from a supplier for $8.30 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 $22,110 a year to make the 6,000 units. What is the approximate rate of return if X Company makes the part instead of buying it from the supplier?Explanation / Answer
Annual cost of Buying= Unit *Cost per unit
Annual cost of Buying= 6000*8.30
Annual cost of Buying= $ 49800
Annual cost of manufacturing = $ 22110
Annual saving in cost = 49800-22110
Annual saving in cost = $ 27,690
Approximate rate of return = rate(nper, pmt,pv,fv)
Approximate rate of return = rate(6,27690,-150000,0)
Approximate rate of return = 3%
Answer
Approximate rate of return = 3%
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