Dryden Service Centre just purchased an automobile hoist for $18,600. The hoist has a five-year life and

Question:

Dryden Service Centre just purchased an automobile hoist for $18,600. The hoist has a five-year life and an estimated salvage value of $1,400. Installation costs and freight charges were $3,900 and $900, respectively. Dryden uses straight-line depreciation.

The new hoist will be used to replace mufflers and tires on automobiles. Dryden estimates that the new hoist will enable its mechanics to replace five extra mufflers per week. Each muffler sells for $75, installed. The cost of a muffler is $35, and the labour cost to install a muffler is $15.

Instructions

(a) Calculate the payback period for the new hoist.

(b) Calculate the annual rate of return for the new hoist.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... Payback Period
Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...