Philipp is considering automating its production line. It will cost $40,000 to acquire the necessary equipment. The annual cost savings are expected to be $8,000 per year for 14 years. The firm requires a 20% return. Ignoring income taxes, what is the payback period?
A) 6 years
B) 3 years
C) 4.2 years
D) 5 years

Question

Quizplus · Accepted Answer

The payback period is calculated by dividing the initial investment by the annual savings. $40,000 / $8,000 = 5 years.

Philipp Is Considering Automating Its Production Line