16-113 The maximum cost savings that can be generated with this new equipment has been estimated to be $264,237.In order to accept this project,what is the minimum number of years the projected savings must be realized before the project breaks even?
A)3.7 years.
B)4.7 years.
C)5.7 years.
D)6.7 years.
E)7.7 years.

Question

Quizplus · Accepted Answer

To break even, the initial cost of the equipment must be covered by the projected cost savings. Let the number of years for the break even point be n. Then:

Initial cost = Projected cost savings for n years
$500,000 = $264,237n
n = 1.893 years

Since this is the minimum number of years, we can round up to the nearest whole year:

n = 2 years

Therefore, the minimum number of years the projected savings must be realized before the project breaks even is 2 years. Looking at the given answer choices, only choice B (4.7 years) is greater than 2 years, so it is the best choice.

16-113 the Maximum Cost Savings That Can Be Generated with This