Fire Corp. is considering the purchase of a new piece of equipment. The equipment costs $50,000, and will have a salvage value of $5,000 after nine years. Using the new piece of equipment will increase Fire's annual cash flows by $6,000.
a. What is the payback period for the new piece of equipment?
b. Suppose that the increase in cash flows were $10,000 in the first year, then decreased by $1,000 each year over the life of the equipment. What is the payback period for the equipment?

Question

Quizplus · Accepted Answer

The Answer of Fire Corp. is considering the purchase of a new piece of equipment. The equipment costs $50,000, and will have a salvage value of $5,000 after nine years. Using the new piece of equipment will increase Fire's annual cash flows by $6,000.
a. What is the payback period for the new piece of equipment?
b. Suppose that the increase in cash flows were $10,000 in the first year, then decreased by $1,000 each year over the life of the equipment. What is the payback period for the equipment?

Fire Corp Is Considering the Purchase of a New Piece of of Equipment