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

question 26

Essay

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?

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Definitions:

Perfect Square Trinomial

A trinomial expression that is the square of a binomial, taking the form \(a^2 + 2ab + b^2\).

Polynomial

A mathematical expression involving a sum of powers in one or more variables multiplied by coefficients.

Perfect Square Trinomial

A trinomial that can be factored into two identical binomials, resulting from squaring a binomial.

Simple Interest

A way of calculating interest where the amount earned or paid is proportional to the initial sum invested or borrowed and the rate of interest.