Sandy's Soda Co. is planning an investment in new cooling equipment that would cost $56,000. The new equipment would save on operating costs over the next 5 years as follows: $21,500 in year 1; $23,100 in year 2; $19,000 in year 3; $13,900 in year 4; and $15,200 in year 5.The payback period for the cooling equipment is years.

It will take 3 years and 219 days to cover for the initial investment.

Explanation:

Giving the following information:

Initial investment= $56,000

Cash flow:

$21,500 in year 1

$23,100 in year 2

$19,000 in year 3

$13,900 in year 4

$15,200 in year 5

The payback period is the time required for the cash flow to cover the initial investment.

Year 1= 21,500 - 56,000= -34,500

Year 2= 23,100 - 34,500= -11,400

Year 3= 19,000 - 11,400= 7,600

To be more accurate:

(11,400/19,000)*365= 219

It will take 3 years and 219 days to cover for the initial investment.

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