Brady Service Center just purchased an automobile hoist for $34,920. The hoist h
ID: 2417219 • Letter: B
Question
Brady Service Center just purchased an automobile hoist for $34,920. The hoist has an 8-year life and an estimated salvage value of $3,880. Installation costs and freight charges were $3,707 and $850, respectively. Brady uses straight-line depreciation.
The new hoist will be used to replace mufflers and tires on automobiles. Brady estimates that the new hoist will enable his mechanics to replace 6 extra mufflers per week. Each muffler sells for $72 installed. The cost of a muffler is $41, and the labor cost to install a muffler is $14.
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Brady Service Center just purchased an automobile hoist for $34,920. The hoist has an 8-year life and an estimated salvage value of $3,880. Installation costs and freight charges were $3,707 and $850, respectively. Brady uses straight-line depreciation.
The new hoist will be used to replace mufflers and tires on automobiles. Brady estimates that the new hoist will enable his mechanics to replace 6 extra mufflers per week. Each muffler sells for $72 installed. The cost of a muffler is $41, and the labor cost to install a muffler is $14.
Explanation / Answer
Sales from a new muffler 72 Cost of muffler 41 Labor cost /muffler 14.00 Net Earning /muffler 17.00 Weekly incremanetal earning= 102.00 Yearly incremental earning 5,304.00 Investment Hoist Cost 34,920 Installation & freight 4,557 Total Cost 39,477 Salvage 3,880 Average investment =(Initial cost+salvage)/2=(39447+3880)/2 $ 21,663.50 Brady Service Center Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Total Investment 39,477 Yearly Incremental Earning 5,304 5,304 5,304 5,304 5,304 5,304 5,304 5,304 Cash Payback period =39477/5304 7.44 years Yeraly Return 5,304 Average Invetment $ 21,664 Average Annual rate of return =5304/21664 24.48%
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