Question

Storax Manufacturing purchases equipment for $50,000. The equipment has an expected life of 10 years and an estimated salvage value of $2,000. Storax expects the new equipment to generate annual cost savings of $8,000. What is the payback period for the equipment

Answer 1

6.25 years

Step-by-step explanation:

The formula to compute the payback period is shown below:

= Initial investment ÷ Net cash flow

where,

The Initial investment is $50,000

And, the net cash flow is $8,000

Now put these values to the above formula

So, the value would equal to

= ($50,00) ÷ ($8,000)

= 6.25 years

All other information which is given is not relevant. Hence, ignored it