Question

Investment Payback Period. Cynthia would also consider returning to school to earn a graduate degree in nursing on a full-time basis in 2 years, with only a small seasonal job for additional income. She currently earns $48,000 per year as a nursing administrator. A seasonal job while attending school full time should earn her $5,000 per year. She will use student loans to fund the costs each year of tuition, expected to be $22,000 for a full-time student, and will have an additional $2,000 per year in household expense loans on her credit card. Cynthia believes she can increase her income by $24,000 per year after graduation. Use an investment payback table to determine Cynthia’s Investment Payback Period.		15

Work:

Investment Payback Period
Expense Item	Amount
Lost-Income
Household Expense Loans
College Tuition, books and fees
Total Costs
Increase in Income
Payback Period

Answer 1

Investment payback period

Lost-Income{(48,000-5,000)*2} (A)	86,000
Household Expense Loans(2,000*2) (B)	4,000
College Tuition, books and fees(22,000*2) (C)	44,000
Total costs(D=A+B+C)	134,000
Increase in income (E)	24,000
Payback period (D/E)	5.58 years

The payback period refers to the amount of time it takes to recover the cost of an investment. Simply put, the payback period is the length of time an investment reaches a break-even point.