An office building as well as its equipment are insured to $7,100,000. The present annual insurance premium is $0.85 per $100 of coverage. A sprinkler system with estimated life of 20 years and no salvage value can be installed for $180,000. Annual maintenance and operating cost is estimated to be $3,600. The premium will be reduced to $0.40 per $100 coverage if the sprinkler system is installed.
a. Find out the rate of return if sprinkler system is installed.
b. With interest at 12%, find out the payout period for the sprinkler system.