Alameda Service Center just purchased an automobile hoist for $15,000. The hoist has a 5-year life and an estimated salvage value of $1,080. Installation costs were $2,900, and freight charges were $820. 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 four extra mufflers per week. Each muffler sells for $65 installed. The cost of a muffler is $35, and the labor cost to install a muffler is $10.
Instructions
(a) Compute the payback period for the new hoist.
(b) Compute the annual rate of return for the new hoist. (Round to one decimal.)