(Ignore income taxes in this problem. )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 which was sold for $8,000 cash.The new equipment has a payback period of:

Question

Quizplus · Accepted Answer

Payback period = Investment required F1F1F1S1F1F1F10 Annual net cash inflow
= ($120,000 - $8,000)F1F1F1S1F1F1F10 $40,000 per year = 2.8 years

(Ignore Income Taxes in This Problem