Answer :
When computing the payback period for a new piece of equipment, the salvage value of the equipment being replaced is deducted from the cost of the new equipment.
The term "payback period" refers to the number of years needed to recoup the initial cash outlay. It is, in other words, the length of time that a machine, facility, or other investment has generated enough net income to cover its investment costs.
In layman's words, until the cumulative cash flow is positive, or the payback year, the cost of the investment is divided by the annual cash flow to get the payback duration. Years are typically used to represent the payback time.
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