Kaleo has made up his mindhe wants a pool in the familys backyard! He figures his kids and spouse will be thrilled. However, to cover the cost of the pool, theyll have to pack up and live away from home for a few weeks during the summer to rent their home to vacationers. He crunched the numbers based on the following estimates.

1. Cost of pool/installation $50,000

2. Life of the pool (no salvage value) 20 years

3. Annual net cash inflows from renting (net of cash expenses for renting and pool maintenance) $6,500

4. Tax rate 23%

5. Average rate of return 8%

Kaleos daughter, Sarah, found the above information written on a sheet of paper in his office, along with the following notes.

This is a no-brainer! Well recover the cost of this pool in just 7 years, even though we plan to live here until were old and gray, or at least as long as the pool hangs on. If we can rent our house out for just 3 weeks each year, itll be almost pure profit that we can put toward paying off the pool. I studied time value of money a little bit in college; the present value of this investment is positive, so therefore we should definitely move ahead with it. My family will think theyre in heaven.

Required

a. What is the primary basis for Kaleos decision to move ahead with the pool? Is it primarily based on quantitative or qualitative considerations? b. Determine the simple payback period using (1) before-tax dollars and (2) after-tax dollars. Does Kaleos payback period agree with either of these?