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 was $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

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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 was $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 CorpIs Considering the Purchase of a New Piece of Equipment