The Higgins Company has just purchased a piece of equipment at a cost of $120,000.This equipment will reduce operating costs by $40,000 each year for the next eight years.This equipment replaces old equipment that was sold for $8,000 cash.The new equipment has a payback period of:

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The payback period is the amount of time it takes for an investment to generate enough cash flow to cover the initial investment. In this case, the initial investment is $120,000 and the annual cash flow is $40,000. Therefore, the payback period is $120,000 / $40,000 = 3 years. However, we need to subtract the $8,000 received from the sale of the old equipment, which gives us a payback period of 3 years - $8,000 / $40,000 = 2.8 years.

The Higgins Company Has Just Purchased a Piece of Equipment