Chemco Enterprises is the manufacturer of Ultra-Dry, a hydrophobic coating that will waterproof anything. Over a 5-year period, the costs associ-ated with the pilot test product line were as fol-lows: first cost of $30,000 and annual costs of $18,000. Annual revenue was $27,000 and used equipment was salvaged for $4000. What rate of return did the company make on this product

Chemco Enterprises

The rate of return that the company made on this product is:

= 15.83%

Explanation:

a) Data and Calculations:

Project duration = 5 years

Initial Cost = $30,000

Total Annual costs = 90,000 ($18,000 * 5)

Total costs  $120,000

Total Annual revenue = $135,000 ($27,000 * 5)

Salvage value =                    4,000

Total revenue =             $139,000

Return = $19,000 ($139,000 - $120,000)

Rate of return = $19,000/$120,000  * 100) = 15.83%

b) The rate of return compares the gain from an investment or a product with the costs of the investment.  The resulting figure is then expressed as a percentage.

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