Brady Service Center just purchased an automobile hoist for $31,180. The hoist h

Question

Brady Service Center just purchased an automobile hoist for $31,180. The hoist has an 8-year life and an estimated salvage value of $3,550. Installation costs and freight charges were $4,289 and $810, 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 $38, and the labor cost to install a muffler is $16.

Compute the cash payback period for the new hoist.

Compute the annual rate of return for the new hoist.

Explanation / Answer

Cost of Automobile $31,310 Installation Costs $3,870 Freight $800 Total Cost $35,980 Life - Years 8 Extra Muffler - Per week 6 Extra Muffler - Per Year 300 Suppose 50 Weeks in a year Selling Price of muffler $73 $21,900 Lees: Total cost ($37+$16) 53 15900 Contribution per unit $20 $6,000 Less: Deperciation $4,498 EBIT $1,503 Tax $0 Operating profit $1,503 Add Deperciation $4,498 Cash Flow Per year $6,000 Average investment(35,980-3780)/2 $ 16,100.00 Annual Dep. $    4,497.50 Annual Net income $    1,502.50 Avg. Annual rate of return=1,502/16,100 9.33%

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