What is the Simple Payback Period for this improvement?

An equipment upgrade requires an initial investment of $1,500.00 USD with a total annual savings of $500.00 and a 33% rate of return.

What is the Simple Payback Period for this improvement?
A . 120 days
B . 495 days
C . Two years
D . Three years

Answer: C

Explanation:

The Simple Payback Period is the time it takes for an investment to pay for itself through savings. To calculate the Simple Payback Period, divide the initial investment by the annual savings. In this case, $1,500.00 USD divided by $500.00 equals 3. To find the exact payback period, consider the rate of return. With a 33% rate of return, the actual savings per year would be $500.00 plus 33% of $500.00, which equals $665.00. Dividing the initial investment of $1,500.00 by $665.00 gives a payback period of approximately 2.26 years, which is closest to two years.

Reference: The concept of Simple Payback Period is a fundamental financial calculation discussed in the LEED AP O+M documentation. It is part of evaluating the cost-effectiveness of energy and water efficiency improvements, particularly under the Energy and Atmosphere and Water Efficiency categories. This metric is commonly used in sustainability projects to assess the viability of efficiency upgrades.