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Legend Service Center just purchased an automobile hoist for $37,200. The hoist has an 8-year life...

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Accounting

Legend Service Center just purchased an automobile hoist for$37,200. The hoist has an 8-year life and an estimated salvagevalue of $3,400. Installation costs and freight charges were $2,600and $800, respectively. Legend uses straight-line depreciation. Thenew hoist will be used to replace mufflers and tires anautomobiles. Legend estimates that the new hoist will enable hismechanics to replace 5 extra mufflers per week. Each muffler sellsfor $72 installed. The cost of a muffler is $37, and the labor costto install a muffler is $15.

(a) Compute the cash payback period for the new hoist.Cash payback period = _______ YEARS

(b) Compute the annual rate of returnfor the new hoist. (Round answer to 2 decimal places, e.g.10.529.)

Annual rate of return = ________

Answer & Explanation Solved by verified expert
4.1 Ratings (813 Votes)
Cash payback period is calculated for evaluation of theinvestment proposalAnswer aComputing the cash payback period for the newhoistNote Since rate of tax is not provided depreciation isignored in calculation of Net cash flow after tax for the purposeof calculating cash payback    See Answer
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