Problem: The department is considering the purchase of a new, more efficient pool heater for its swimming pool at a cost of $15000. It should save $3000 in cash operating costs per year. The estimated useful life is 8 years and zero disposal value. Ignore taxes.
1. What is the payback time?
2. Compute the NPV if the minimum rate of return desired is 8%. should department buy the heater? Why?
3. Using the ARR model, compute the rate of return on the initial investment.