Question

The Easton manufacturing Company is looking to replace its conveyor belt system. A new system will cost $345,000, and will result in cost savings of $220,000 in the first year, followed by savings of $100,000 per year over the following 3 years. The payback period for this project is closest to: Round your answer to two decimal places.

Answer 1

Answer:

2.25 years

Explanation:

Payback calculates the amount of time it takes to recover the amount invested in a project from it cumulative cash flows

Amount recovered in year 1 : $-345,000 + $220,000 = $-125,000

Amount recovered in year 2 : -1250000 + 100,000 = $-25,000

-25,000 / 100,000 = 0.25