Training cost $2,500 and a project required an initial investment of $23,500. If the project yields monthly savings of $2,500 beginning after 4 months, what is the payback period in months (before…

Question

Options

• A7.2
• B10.4
• C14.4
• D28.8

• A
  10% (3)
• B
  7% (2)
• C
  80% (24)
• D
  3% (1)

Explanation

Option C (14.4 months) is correct because the total investment is $2,500 (training) + $23,500 (project) = $26,000, and savings of $2,500/month don't begin until after a 4-month delay. Dividing $26,000 ÷ $2,500 gives 10.4 months of savings needed, then adding the 4-month waiting period yields 14.4 months total.

Why the distractors fail:

• B (10.4) is the most tempting trap - it correctly divides $26,000 ÷ $2,500 but ignores the 4-month delay before savings start.
• A (7.2) likely results from omitting the training cost and the delay, using only a portion of the total investment.
• D (28.8) results from a double-counting or arithmetic error, roughly doubling the correct answer.

Memory tip: Think of payback in two stages - "How long until savings start?" (the delay) + "How long to recover the full investment once savings begin?" (total cost ÷ monthly savings). Always include all upfront costs (training, setup, etc.) and never forget to add any pre-savings delay to your savings-recovery period.

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