Question

A more efficient heating system adds $7,500 to the cost of your project. Adding this system will save $1200 per year. If the interest rata is 8%, about how long will it take to pay back the total investment

Answer 1

It will take approximately 6.25 years to pay back the $7,500 investment from the annual savings of $1,200 provided by the more efficient heating system, using the concept of the payback period.

Step-by-step explanation:

To determine how long it will take to pay back the total investment of a more efficient heating system that adds $7,500 to the project cost and saves $1,200 per year, we use the concept of the payback period. The payback period is the time it takes for savings to equal the initial investment. Assuming the interest rate is not factored into the payback calculation (since it is not a part of the traditional simple payback calculation), we simply divide the additional cost by the annual savings:

$7,500 ÷ $1,200/year = 6.25 years

Therefore, it will take about 6.25 years to recover the $7,500 investment through annual savings of $1,200.