An investment of $270,000 is expected to generate $140,000 in cost savings annually over the asset's three year life.Assume straight-line depreciation is used.Ignore income taxes.What is the payback period?
A)0.75 years
B)1.93 years
C)2.40 years
D)3.00 years

Question

Quizplus · Accepted Answer

To calculate the payback period, we need to divide the initial investment by the annual cost savings:

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 B.

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