An initial investment of $270,000 is expected to generate $140,000 in annual cost savings over the asset's expected 3-year life.Assume straight-line depreciation and ignore income taxes.The payback period is _____.

Question

Quizplus · Accepted Answer

To calculate the payback period, we need to find out how long it will take for the cost savings to recover the initial investment.

Payback period = Initial investment / Annual cost savings

Payback period = $270,000 / $140,000 per year

Payback period = 1.93 years

Therefore, the best choice is C, with a payback period of 1.93 years.

An Initial Investment of $270,000 Is Expected to Generate $140,000