Exercise 24-9

Legend Service Center just purchased an automobile hoist for $34,100. The hoist has an 8-year life and an estimated salvage value of $3,900. Installation costs and freight charges were $4,060 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 7 extra mufflers per week. Each muffler sells for $73 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. (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

%