Instead of Model A and B, Jane is now considering Model X and Y as she learned that her budget envelope has increased to $15,000
Model (C) 
Model (X) 
Model (Y) 

Initial Cost 
$7,500 
$10,000 
$12,500 
Life (years) 
4 
4 
4 
Annual Savings 
$2,500 
$2,750 
$7,000 
Payback Period ( When cash flows are equal) = Initial Investment / Annual Savings
Model C
Payback period = 7500 / 2500
= 3 Years
Model X
Payback period = 10000 / 2750
= 3.6363 Years
Model Y
Payback Period = 12500 / 7000
= 1.78571 Years
The Payback period measures how many years or period the cash flows will take to cover the initial investment. So, The Lower the payback period better it would be for the firm. So Model Y Should be Selected [Option B is the correcr]
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