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A small accounting firm is considering the purchase of a computer software package that would greatly reduce the amount of time needed to prepare tax forms
A small accounting firm is considering the purchase of a computer software package that would greatly reduce the amount of time needed to prepare tax forms. The software costs $2200 and this expense will be incurred immediately. The firm estimates that it will save $650 at the end of each year beginning in one year for 8 consecutive years, and also save $1788 in year 9. What is the payback on the computer package? Place your answer as an integer that stands for number of years. Please explain how to solve this.
Expert Solution
Because it is known that the initial investment for the project is $2,200, and the cost savings is $650 for the first 8 years, the payback period would be 4 years. The calculation to arrive at this figure is as follows:
2200650≈3.38462200650≈3.3846
When rounded up to the next highest year, it can be seen that the payback period for the investment of the new software package is approximately 4 years.
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