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CAPM Business Analysis Frameworks Practice Question

A business analyst is performing a cost-benefit analysis for a proposed system upgrade. The upgrade costs $50,000 upfront and saves $15,000 per year in operational costs. The project has a 5-year horizon. What is the payback period in years?

Answer choices

Why each option matters

Answer the question above first, then reveal the full breakdown to understand why each option is right or wrong.

Correct answer & explanation

✓

3.33 years

The payback period is calculated by dividing the initial investment by the annual savings: $50,000 / $15,000 = 3.33 years. Therefore, Option C is correct. Option A (5.00 years) incorrectly uses a different calculation, perhaps total savings over 5 years divided by something. Option B (4.00 years) is incorrect because it does not match the calculation. Option D (0.33 years) is incorrect because it ignores the initial cost.

Answer analysis

Option-by-option breakdown

For each option: why learners choose it and why it is or isn't the right answer here.

✗
5.00 years
Why it's wrong here
This is the project horizon, not the payback.
✗
4.00 years
Why it's wrong here
This would be if savings were $12,500.
✓
3.33 years
Why this is correct
Payback period = Initial investment / Annual savings = 50,000/15,000 = 3.33.
✗
0.33 years
Why it's wrong here
This is the payback if savings were $150,000.

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CAPM Business Analysis Frameworks Practice Question

Why each option matters

Option-by-option breakdown

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