In: Accounting
X Company currently buys 7,500 units of a part each year from a
supplier for $7.60 per part, 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 $28,385 a year to make all 7,500
units.
What is the approximate rate of return if X Company makes the part
instead of buying it from the supplier? [Note: 0.03 means 3%,
etc.]