Phoxco is considering automating its production line. It will cost $40,000 to acquire the necessary equipment. The annual cost savings are expected to be $8,000 per year for 14 years.. The firm requires a 20% return.
Ignoring income taxes, what is the payback period?
A) 3 years
B) 4.2 years
C) 5 years
D) 6 years

Question

Quizplus · Accepted Answer

The payback period is calculated by dividing the initial investment by the annual savings. $40,000 / $8,000 = 5 years.

Phoxco Is Considering Automating Its Production Line