The City of Industry parks department is considering the purchase of a new, more efficient pool heater for its Campbell Swimming Pool at a cost of $28,000. It should save $7,000 in cash operating costs per year. Its estimated useful life is 10 years, and it will have zero disposal value. Ignore taxes.
1. What is the payback time?
2. Compute the NPV if the required rate of return is 10%. Should the department buy the heater?
3. Using the ARR model, compute the rate of return on the initial investment.