Nullabor Park Department is considering a new capital investment.The following information is available on the investment.The cost of the machine will be $144 192.The annual cost savings if the new machine is acquired will be $40 000.The machine will have a five-year life,at which time the terminal disposal value is expected to be zero.Nullabor Park is assuming no tax consequences.Nullabor Park has a 10% required rate of return.What is the payback period on this investment?

Question

Quizplus · Accepted Answer

To calculate the payback period, we need to find out how many years it takes to recover the initial cost of the investment. In this case, the initial cost is $144,192 and the annual cost savings are $40,000. Therefore, the payback period can be calculated as follows:

Payback period = Initial cost / Annual cost savings
Payback period = $144,192 / $40,000
Payback period = 3.6 years

Therefore, the best choice is B as it correctly represents the payback period of the investment.

Nullabor Park Department Is Considering a New Capital Investment