The Jackson City Park department is considering the purchase of a new, more efficient pool heater for its Moorcroft Swimming Pool at a cost of $15,000. It should save $3,000 in cash operating costs per year. Its estimated useful life is 8 years, and it will have zero disposal value. Ignore taxes.
1. What is the payback time?
2. Compute the NPV if the minimum rate of return desired is 18%. Should the department buy the heater? Why?
3. Using the ARR model, compute the rate of return on the initial investment.