Alameda Service Center just purchased an automobile hoist for $14,160. The hoist has a 6-year life and an estimated salvage value of $1,125. Installation costs were $3,010, and freight charges were $800. Alameda uses straight-line depreciation.
The new hoist will be used to replace mufflers and tires on automobiles. Alameda estimates that the new hoist will enable his mechanics to replace 4 extra mufflers per week. Each muffler sells for $86 installed. The cost of a muffler is $24, and the labor cost to install a muffler is $11.
a) Compute the payback period for the new hoist in years.
b) Compute the annual rate of return for the new hoist in a percentage.