A construction company is considering procuring one of two types of heavy construction equipment (A and B). Each type of equipment is expected to have a 5-year useful life with zero salvage value. (A) can be purchased at a cost of $30,000, while (B) would cost $55,000. The net cash flows for each type of equipment are given below.
Year A B
0 -$30.000 -$48,000
1 6,000 24,000
2 6,000 10,000
3 12,000 21,000
4 6000 7,000
5 25,564 26,610
(a) Compute the payback period for both pieces of equipment.
(b) Compute the discounted payback period, where i=8% for both pieces of equipment