Final answer:
Understanding payback periods in capital budgeting helps investors evaluate the time it takes for an investment to recoup its costs. However, without specific energy savings data, it's impractical to determine the exact payback time for the insulation investment.
Step-by-step explanation:
The question revolves around the concept of the payback period, which is a capital budgeting tool used to calculate the duration it takes for an investment to generate cash flows sufficient to recover the initial investment cost. To determine this payback period, we need to know the annual savings due to the extra insulation and the cost of the insulation. The information provided indicates that the cost of energy is $1.00 per million joules and the cost of insulation is $4.00 per square meter. The average temperature difference (ΔT) during the heating season of 120 days is 15.0°C, which affects the amount of energy used for heating and consequently the savings from insulation.
If we had details like the energy savings in joules per square meter of insulation, we could calculate the annual savings. This, divided by the insulation cost per square meter, would give us the simple payback time. However, missing these details prevents us from providing a final calculation. For investors, understanding and predicting payback periods is essential when considering the time value of money and comparing investment options against their opportunity costs and associated risk premiums.