Training cost is $3,000 and a project required an initial investment of $12,000. If the project yields monthly savings of $1,800 beginning after 3 months, what is the payback period in months…

Question

Options

• A4.17
• B8.33
• C11.33
• D28.28

• A
  4% (1)
• B
  4% (1)
• C
  84% (21)
• D
  8% (2)

Explanation

Option C (11.33 months) is correct because the total investment is $3,000 + $12,000 = $15,000, and since savings don't begin until after month 3, you first add that 3-month delay, then calculate how long to recover the remaining balance: $15,000 ÷ $1,800 = 8.33 additional months, giving 3 + 8.33 = 11.33 months total.

Why the distractors fail:

• B (8.33) is the most tempting trap - it correctly divides $15,000 by $1,800 but ignores the 3-month period before any savings occur.
• A (4.17) results from using only one cost component (e.g., just the $3,000 training cost ÷ $1,800 × some factor), failing to combine both investment figures.
• D (28.28) likely comes from incorporating time value of money or interest rates, which the question explicitly excludes ("before money costs and taxes").

Memory tip: When a payback problem mentions a delay before cash flows begin, think of it as a two-part race - first wait for the starting gun (the delay period), then run to the finish line (investment ÷ savings rate). Add both legs together for the true payback period.

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