Question

URCES Exercise 20-9 Legend Service Centers chased an automobile hot for $31.500. The hot has an arenda d a va of $3.010. n o n costs and freight charges were $3.560 and $780, respectively. Legend west -ne depreciation The new host will be used to replace mufflers and tires on om Legend estimates that the new hit wil enable his mechanics to replace 7 extra mufflers per week. Each muffler sells for $75 installed. The cost of a muer is $36, and the labor cost to instalammers 516. Compute the cash payback period for the new hoist (Round answer to 2 decimal places, eg. 10.50.) Cash payback period Compute the annual rate of return for the new hot (Round answer to decimal place 10.5.) Annual me of return Click if you would like to show Work for this question: Open Show was

Answer 1

Solution a:

Cost of automobile hoist = Purchase cost + freight + Installation = $31,500 + $780 + $3,560 = $35,840

Annual cash inflows = 7*($75-$36-$16)*52 = $8,372

Cash payback period = Initial investment / Annual cash inflows = $35,840 / $8,372 = 4.28 years

Solution b:

Annual depreciation = (Cost - Salvage value) / useful life = ($35,840 - $3,010) / 8 = $4,104

Annual income = $8,372 - $4,104 = $4,268

Average investment = (Cost + Salvage value) / 2 = ($35,840 + $3,010)/2 = $19,425

Annual rate of return = Net income / average investment = $4,268 / $19,425 = 21.9%