Problem:
Upper Darby Park Department is considering a new capital investment. The following information is available on the investment. The cost of the machine will be $144,192. The annual cost savings if the new machine is acquired will be $40,000. The machine will have a 5-year life, at which time the terminal disposal value is expected to be zero. Upper Darby Park is assuming no tax consequences. Upper Darby Park has a 10% required rate of return. What is the payback period on this investment?