Legend Service Center just purchased an automobile hoist for $32,400. The hoist

Question

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.

Compute the annual rate of return for the new hoist. (Round answer to 1 decimal place, e.g. 10.5.)

Explanation / Answer

year cash flow 0 -36400 (-32400-3300-700) 1 to 4 4160 (72-36-16)*4*52 5 7160 4160+3000 annual return = (((4160*4)+7160)/5)/36400 ie= 13.077%

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