The Easton manufacturing Company is looking to replace its c

The Easton manufacturing Company is looking to replace its conveyor belt system. A new system will cost $345,000, and will result in cost savings of $220,000 in the first year, followed by savings of $100,000 per year over the following 3 years. If the firm’s cost of capital is 9%, what is the discounted payback period for this project? (Do not round intermediate computations. Round final answer to two decimal places.)

2.25 years.

2.40 years.

2.76 years.

2.58 years.

Solution

Solution:

To compute the discounted payback

Since the net present value is positive we need to find the discounted payback at which the initial investment is getting paid back henc e

-345000 = initial capital outflow

201834+84168+77218 = 363221 = capital inflow

363221 - 345000 = 18221

the payback is happening almost in the end of year hence the answer is 2.76 years

answer option C