Problem 11-107 [LO 11-2]

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 Fires annual cash flows by $6,000.

a. What is the payback period for the new piece of equipment? (Round your answer to 2 decimal places.)

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? (Round your answer to 2 decimal places.)