Answer to Question #74223 in Microeconomics for zulfiqar

Question

Lightco Corpn. has just replaced its production machinery with new, more efficient equipment that will reduce annual production costs by 5 Million per year. The cost of the new machines is 288 Million. if the firm uses a discount rate of 8 percent per year, how many years will it take for the firm to recoup its investment?

Answer 1

Annual economic effect:
5 – 0,08*288 = -18.04 (million).
Number of years that will recoup the investment:
288/18.04 ≈ 16 (years).