# Legend service center just purchased an automobile hoist for $32,400. the hoist has an 8-year life and Legend service center just purchased an automobile hoist for$32,400. the hoist has an 8-year life and an estimated salvage value of $3,000. installation costs and freight charges were$3,300 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 $36, 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.) (b) compute the annual rate of return for the new hoist. (round answer to 1 decimal place, e. g. 10.5.)

## This Post Has 3 Comments

1. jorge0506 says:

a) 316.52 weeks or 6.09 years

b) 4.96%

Explanation:

F0 cost: 32,400 + 3,300 + 700 = 36,400

profit per week:

5 units x (75 sales - 36 materials - 16 materials) = 115

payback period: time at which the project pay for itself regardless of the time value of money

36,400  / 115 = 316.52 weeks

in years: 316.52 / 52 weeks per year = 6.09 years

annual rate of return:

net income / investment

115 contribution per week x 52 week

- 4,175 depreciation expense* = 1,805 income

1,805/36,400 = 0.0496 = 4.96%

* (cost - salvage value)/useful life

(36,400 - 3,000)/8 = 4,175

2. Expert says: