Question

Jessica is investing in a capital equipment for her printing press. She wants to know how long it will take for her investment to be returned in the form of savings. The new equipment costs $600,000, and the maintenance costs of the new equipment will save her $120,000 per year. The payback period is _____.

Answer 1

Answer:

5 years

Explanation:

Data provided in the question;

Cost of the new equipment = $600,000

Savings on the maintenance cost per year = $120,000

Now,

The Payback period is given using the formula = $\frac{\textup{Initial invested amount}}{\textup{Positive cash flow per year}}$

also, the positive cash flow is the annual savings with new equipment

therefore,

The Payback period is given using the formula = $\frac{\ \textup{600,000}}{\ \textup{120,000}}$

or

The Payback period is given using the formula = 5 years