Question

A small accounting firm is considering the purchase of a computer software package that would reduce the amount of time needed to prepare tax forms. The software costs $1750 and this expense will be incurred immediately. The firm estimates that it will save $550 at the end of each year beginning in one year for 9 consecutive years, and also save $1513 in year 10. What is the payback on the computer package?
_____years

Answer 1

Answer:

3.18 years

Explanation:

The formula to compute the payback period is shown below:

= Initial investment ÷ Net cash flow

where,  

The Initial investment is $1,750

And, the net cash flow for 9 consecutive years is $550

Now put these values to the above formula  

So, the value would equal to

= ($1,750) ÷ ($550)

= 3.18 years

All other information which is given in the question is not relevant. Hence, ignore it