Question - Legend Service Center just purchased an automobile hoist for $32,500. The hoist has an 8-year life and an estimated salvage value of $3,000. Installation costs and freight charges were $3,470 and $840, 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 $75 installed. The cost of a muffler is $39, and the labor cost to install a muffler is $16.
(a) Compute the cash payback period for the new hoist.
(b) Compute the annual rate of return for the new hoist.