Suppose the Thunder Bay Parks 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 eight 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 8 percent. Should the department buy the heater? Why? 

3. Using the ARR model, compute the rate of return on the initial investment.