In deciding to purchase or lease a new dictation system, the Director of HI Services calculated payback period and rate of return on the investment. The hospital's required payback period is years with a required rate of return of 20%. If the equipment costs $32,000 and generates $8 per year in savings, what would the payback period for this equipment be?
To determine the payback period, you divide the initial investment by the annual savings generated from the investment. The equipment costs $32,000 and generates $8,000 per year in savings (not $8 per year as initially stated, which seems to be a typo). Therefore, the payback period is $32,000 / $8,000 per year = 4 years.
typo error It's $8000 per year in saving