A renewable energy project costs $2 million and is expected to save $300,000 ann

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Question: A renewable energy project costs $2 million and is expected to save $300,000 annually. What is the payback period in years?

Options:

Correct Answer: 6.67 years

Solution:

Payback period = Total cost / Annual savings = 2,000,000 / 300,000 = 6.67 years.

A renewable energy project costs $2 million and is expected to save $300,000 annually. What is the payback period in years?

A renewable energy project costs $2 million and is expected to save $300,000 annually. What is the payback period in years?

Step 1: Identify the total cost of the renewable energy project, which is $2 million.
Step 2: Identify the annual savings from the project, which is $300,000.
Step 3: Use the formula for payback period: Payback period = Total cost / Annual savings.
Step 4: Plug in the numbers: Payback period = 2,000,000 / 300,000.
Step 5: Calculate the result: 2,000,000 divided by 300,000 equals approximately 6.67.
Step 6: Interpret the result: The payback period is about 6.67 years.

Payback Period – The payback period is the time it takes for an investment to generate an amount of income or cash equivalent to the cost of the investment.