Legend Service Center just purchased an automobile hoist for $32,000. The hoist has an 8-year life and an estimated salvage value of $3,600. Installation costs and freight charges were $3,600 and $800, 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 5 extra mufflers per week. Each muffler sells for $72 installed. The cost of a muffler is $39, and the labor cost to install a muffler is $13.
(a)
Compute the cash payback period for the new hoist.
Cash payback period years
(b)
Compute the annual rate of return for the new hoist. (Round answer to 2 decimal places, e.g. 10.52%.)
Annual rate of return %