Question - Carleton Service Center just purchased an automobile hoist for $14,947. The hoist has a 5-year life and an estimated salvage value of $1,410. Installation costs were $2,830, and freight charges were $868. Carleton uses straight-line depreciation.
The new hoist will be used to replace mufflers and tires on automobiles. Carleton estimates that the new hoist will enable his mechanics to replace 4 extra mufflers per week. Each muffler sells for $78 installed. The cost of a muffler is $40, and the labor cost to install a muffler is $12.
Compute the payback period for the new hoist.
Compute the annual rate of return for the new hoist.