Question
Larrys Service Center just purchased an automobile hoist for $35,000. The hoist has a 6-year life and an estimated salvage value of $5,000. Larry uses
Larrys Service Center just purchased an automobile hoist for $35,000. The hoist has a 6-year life and an estimated salvage value of $5,000. Larry uses straight-line depreciation. The companys required rate of return is 8%.
The new hoist will be used to replace mufflers on automobiles. Larrys estimates that the new hoist will enable his mechanics to replace 6 extra mufflers per week. Each muffler sells for $80 installed. The cost of a muffler is $40 and the labor cost to install a muffler is $10. The shop is open 52 weeks each year.
- Annual straight-Line Depreciation Expense:
- Net Annual Cash Inflow:
- Average Annual Net Income:
- Average Investment:
- Compute the cash payback period:
- Compute the annual rate of return:
- Compute the net present value (assume PVF= 0.5403 and PVAF= 5.7466):
- Should the hoist be purchased?
( Show work please )
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