An initial investment of $270,000 is expected to generate $140,000 in annual cost savings over the asset's expected 3-year life. Assume straight-line depreciation and ignore income taxes. The payback period is ________. 0.75 years 3.00 years 1.93 years 2.40 years

The payback period for this project is 1.93 years.

Here's the calculation:

- The annual cash inflow from the project is the cost savings, which is $140,000 per year.
- The initial investment is $270,000.
- The cumulative cash inflow at the end of the first year is $140,000.
- The cumulative cash inflow at the end of the second year is $280,000 ($140,000 + $140,000).
- The cumulative cash inflow at the end of the third year is $420,000 ($140,000 + $140,000 + $140,000).
- The payback period is the time it takes for the cumulative cash inflow to equal the initial investment.

To calculate the payback period, we need to find the point at which the cumulative cash inflow equals the initial investment of $270,000. This occurs between the second and third years, since the cumulative cash inflow at the end of the second year is $280,000 and the cumulative cash inflow at the end of the third year is $420,000.

To find the exact point, we can use linear interpolation:

Payback period = Year 2 + (Initial investment - Cumulative cash inflow at end of Year 2) ÷ Cash inflow in Year 3

Payback period = 2 + ($270,000 - $280,000) ÷ $140,000

Payback period = 2 + (-$10,000 ÷ $140,000)

Payback period = 2 - 0.0714

Payback period = 1.93 years

Therefore, the payback period for this project is 1.93 years.