Carleton Service Center just purchased an automobile hoist for $15,000.The hoist
ID: 2389747 • Letter: C
Question
Carleton Service Center just purchased an automobile hoist for $15,000.The hoist has a 5-year life and an estimated salvage value of $1,080. Installation costs were $2,900, and freight charges were $820. Carleton uses straight-line depreciation.The new hoist will be used to replace mufflers and tires on automobiles. Carleton estimates that the new hoist will enable his mechanics to replace four extra mufflers per week. Each muffler sells for $65 installed. The cost of a muffler is $35, and the labor cost to install a muffler is $10.
Compute the payback period for the new hoist. (Round to 1 decimal place, e.g. 5.1.)
a)_____years
Compute the annual rate of return for the new hoist. (Round to 1 decimal place, e.g. 5.1.)
b) ______%
3)Corny produces corn chips. The cost of one batch is below:
Direct Materials $36.00
Direct Labor 26.00
Variable Overhead 22.00
Fixed Overhead 28.00
An outside supplier has offered to produce the corn chips for $50 per batch. How much will Corny save if it accepts the offer?
4)If an asset cost $420,000 and is expected to have a $60,000 salvage value at the end of its ten-year life, and generates annual net cash inflows of $60,000 each year, the cash payback period is ___ years?
Explanation / Answer
a. 18720/4160 = 4.5 years b. (4160-3528)/(18720 - 1080)/2 = 632/8820 = 7.2% 3. Cost to Make = 36 + 26 + 22 + 28 = $112 Cost to buy = 28 + 50 = 78 Savings: 112 - 78 = $34 per batch 4. 420,000/60,000 = 7 years