Given the following information and assuming straight-line depreciation to zero, what is the payback period for this project? Initial investment = $500,000; life = ﬁve years; cost savings =
$160,000 per year; salvage value = $30,000 in year 5; tax rate = 34%; discount rate = 13%.

Question

Quizplus · Accepted Answer

The payback period is calculated by dividing the initial investment by the annual cash savings. The annual cash savings are $160,000, and the initial investment is $500,000. Thus, the payback period is $500,000 / $160,000 = 3.125 years. However, considering taxes and depreciation, the effective cash flow is reduced, leading to a longer payback period of approximately 3.6 years.

Given the Following Information and Assuming Straight-Line Depreciation to Zero