Exercise 25-09

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Legend Service Center just purchased an automobile hoist for $34,700. The hoist has an 8-year life and an estimated salvage value of $3,800. Installation costs and freight charges were $3,600 and $700, 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 $35, and the labor cost to install a muffler is $12. (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

%

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