Question

You have decided to renovate your restaurant. You estimate that renovations will result in an extra $125,000 in sales per

year and save $25,000 in utilities. If the renovation costs $2 million, how many years will it take for the renovation to be worth it?

Answer 1

Answer: 14 years

Explanation: Took test on KM and got it right

Answer 2

13.33 years

Step-by-step explanation:

The time it takes for an investment to repay its initial investment if the payback period. For an investment project with regular cash flows, the formula for calculating the payback period is ;

Payback period =Initial investment/cash flows

In this case: Initial investment is $2,000,000.00

cash flow= extras sales per year plus saving on utilities

= $125,000 + $25,000= $ 150,000

payback period = $ 2,000,000/ $ 150,000

=13.33 years