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Compute the annual rate of return for the new hoist

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Question - Legend Service Center just purchased an automobile hoist for $34,600. The hoist has an 8-year life and an estimated salvage value of $3,000. Installation costs and freight charges were $3,600 and $800, respectively.

Legend uses straight-line depreciation. The new hoist will be used to replace mufflers and tires on automobiles. Legend estimates that the new hoist will enable his mechanics to replace 5 extra mufflers per week. Each muffler sells for $77 installed. The cost of a muffler is $36, and the labor cost to install a muffler is $16.

Required -

(a) Compute the cash payback period for the new hoist.

(b) Compute the annual rate of return for the new hoist.

Reference no: EM133141643

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