Brady Service Center just purchased an automobile hoist for $31,120. The hoist h

Question

Brady Service Center just purchased an automobile hoist for $31,120. The hoist has an 8-year life and an estimated salvage value of $3,790. Installation costs and freight charges were $3,710 and $750, 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 7 extra mufflers per week. Each muffler sells for $72 installed. The cost of a muffler is $40, and the labor cost to install a muffler is $16.

I computed the cash payback period to be 6.11 years, but I can't seem to figure out the annual rate of return for the new hoist.

So my question is:

1. Compute the annual rate of return for the new hoist.

Explanation / Answer

Cost Of Hoist                 31,120 Add : Instalation & Freight                 4,460 Total Cost               35,580 Salvage Value =                 3,790 Average Investment =Cost+Salvage/2=               19,685 Annual Return Sales revenue per muffler                       72 Less cost +labor cost per muffler                       56 Marginn per muffler                       16 Additional Muffler replacement per week=                         7 Yearly additional muffler replacement=52*7=                     364 Annual Incremental Revenue=                 5,824 Annual Rate of Return =5824/19685= 29.59%

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