Exercise 12-9

Legend Service Center just purchased an automobile hoist for $31,200. The hoist has an 8-year life and an estimated salvage value of $3,500. Installation costs and freight charges were $4,130 and $750, 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 $76 installed. The cost of a muffler is $37, and the labor cost to install a muffler is $12. (a) Compute the cash payback period for the new hoist. (Round answer to 2 decimal places, e.g. 10.50.)

Cash payback period_____ years

(b) Compute the annual rate of return for the new hoist. (Round answer to 1 decimal place, e.g. 10.5.)

Annual rate of return________%