Chapter 26, Problem S26.8SE

To determine

Introduction:

Payback Period: Payback period is the period in which the project recovers its initial cost of the investment. It can be calculated by dividing the initial investment by the annual cash inflow from the project. The formula to calculate the Payback period is as follows:

$PaybackPeriod=\frac{InitialInvestment}{AnnualCash\inf low}$

Hence, smaller the payback period better it is. A project with the smaller payback period is chosen first in the capital rationing process.

To determine: The expected annual net cash savings from the new software