Question

A new green technology can be installed in your home for a one-time installation cost of $\$10,\!000$ and annual maintenance costs of $\$650$ per year. If the green technology is supposed to save you $\$1200$ each year in energy bills, how many whole years will it take to recuperate your costs

Answer 1

The number of years it would take to recuperate the costs is 19 years.

How many years will it take to recuperate your costs?

Payback calculates the amount of time it takes to recover the amount invested in a project from it cumulative cash flows.

Payback period : 10,000 + 650x = 1200x

Where x represents the number of years

10,000 = 1200x - 650x

10,000 = 550x

x = 10,000 / 550

x = 19 years

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Answer 2

The number of whole years to recuperate your investment costs in the new green technology is 19 years, using the break-even analysis technique.

What is the break-even analysis technique?

The break-even analysis technique offers a way to compute the payback period.

The break-even analysis technique equates the total costs to the total revenue, using the contribution margin approach.

Data and Calculations:

Fixed costs = $10,000

Annual variable costs = $650

Annual savings = $1,200

Annual contribution margin = $550 ($1,200 - $650)

Break-even period = 18.18 years ($10,000/$550)

Thus, using the break-even analysis, the number of whole years to recuperate your investment costs in the new green technology is 19 years.

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