Question -
Legend Service Center just purchased an automobile hoist for $35,100. The hoist has an 8-year life and an estimated salvage value of $3,760. Installation costs and freight charges were $4,130 and $730, 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 6 extra mufflers per week. Each muffler sells for $71 installed. The cost of a muffler is $38, and the labor cost to install a muffler is $14.
(a) Compute the cash payback period for the new hoist.
(b) Compute the annual rate of return for the new hoist.