Lester Manufacturing is conducting preliminary research into installing a geothermal heat pump to heat and cool its factories and offices. The initial cost of installing the new system is $265,000; however, Lester will save $65,000 annually on its heating and cooling costs. The system has an expected life of 35 years. What is the payback period, in years, for the geothermal heat pump?

Question

Quizplus · Accepted Answer

To calculate the payback period, we divide the initial cost of the system by the annual savings: 
Payback period = $265,000 ÷ $65,000/year = 4.08 years. 
Therefore, the correct answer is A) 4.08 years.

Lester Manufacturing Is Conducting Preliminary Research into Installing a Geothermal