X Company currently buys 8,000 units of a part each year from a supplier for $7.

Question

X Company currently buys 8,000 units of a part each year from a supplier for $7.70 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 6 years, at which time it will have zero disposal value. X Company estimates that it will cost $32,985 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? .02 Submit Answer Incorrect. Tries 3/5 Previous Tries

Explanation / Answer

PV factor for rate of return = 150000/(8000*7.7-32985)= 5.242 Approximate rate of return = 4%

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