In calculating the payback period where new equipment is replacing old equipment, any salvage value to be received on disposal of the old equipment should be deducted from the cost of the new equipment.

Question

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When calculating the payback period for new equipment that is replacing old equipment, any salvage value received from the old equipment should be subtracted from the cost of the new equipment. This is because the salvage value will reduce the overall cost of the new equipment and affect the length of the payback period.

In Calculating the Payback Period Where New Equipment Is Replacing