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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 $100,00 per year over the following 3 years. the payback period for this project is closest to: round your answer to two decimal places.



Answer :

2.25 years

The computation of payback period is shown below:-

Year      Cash flows        Cumulative Cash flows

0            ($345,000)       ($345,000)

1              $220,000 ($125,000)

2             $100,000         ($25,000)

3              $100,000          $75,000

4              $100,000          $175,000

Payback Period

Payback period is defined as the number of years required to recover the original cash investment. In other words, it is the period of time at the end of which a machine, facility, or other investment has produced sufficient net revenue to recover its investment costs.

Payback period = Last period with a negative cumulative cash flow +(Absolute value of cumulative cash flows at that period ÷ Cash flow after that period)

=2 + ($25,000 ÷ $100,000)

= 2.25 years

So, for computing the payback period  simply applied the above formula.

To learn more about Payback Period visit:

brainly.com/question/13978071

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