Question 1
A city decides to invest in a new piece of equipment and wants to know how long it will take to recover the amount invested by using the payback analysis technique. The city uses the following assumptions in its analysis: The cost of the equipment is $500,000. The equipment will generate $200,000 in revenue per year. The variable costs of operating the equipment will be $100,000 per year. The depreciation on the equipment will be $20,000 per year. How long will it take the city to recover the amount invested in the new equipment?
- AOption A:
2 years and 6 months
- BOption B:
2 years and 9 months
- COption C:
Syears
- DOption D:
6 years and 3 months
Show answer and explanation
Correct answer: C