Response to the following problem:
Espinosa Industries is considering an investment in equipment that will replace direct labor. The equipment has a cost of $615,000 with a $75,000 residual value and a 10-year life. The equipment will replace one employee who has an average wage of $134,100 per year. In addition, the equipment will have operating and energy costs of $18,000 per year.
Determine the average rate of return on the equipment, giving effect to straightline depreciation on the investment.