Question

At a cost of $12,000, Community Hospital is refinancing the mortgage on the building that houses its clinic. The hospital will save $500/month in interest. What is the payback period on the refinancing?

Answer 1

Answer: 24 months

Explanation: First, the $500 x 12 months = $6,000 savings in the first year.

For the next 12 months, the savings is an additional $6,00.

Therefore, if you add those 2 together, it is 24 months to recover the cost of refinancing.

Answer 2

24 months

Step-by-step explanation:

Payback method analysis the amount of time that will pass until you recover your capital. Since the capital is $12000 ant the payments are $500 per month, the payback period will be 12000/500 = 24 months.