Alameda Service center just purchased an automobile hoist for $ 14000. The hoist

Question

Alameda Service center just purchased an automobile hoist for $ 14000. The hoist has a 6 year lifeand an estimated salvage value of $1481. Installation costs were $3020, and freight charges were $830 Alameda uses straight-line depreciation.

The new hoist will be used to replace mufflers and tires on automobiles. Alameda estimates that the new hoist will enable his mechanics to replace 5 extra mufflers per week. each muffler sells for $83 instaleed. The cost of a muffler is $23 and the labor to install a muffler is $14

(a) compute the payback period for the new hoist. (round anwser to 1 decimal places)

Payback period ____________ years

B) compute the annual rate of return for the new hoist. ( round answer to the 1 decimal)

Annual rate of return _______

Explanation / Answer

Annual benefits = 5*52*(83-23-14)= 11960

Initial cost = 14000+3020+830= 17850

payback period = 1+ (17850-11960)/11960= 1.5 years

b)annual rate of return = 11960/((17850+ 1481)/2)= 123.7%

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