A firm is evaluating a proposal to develop a new inventory database system. The initial cost of the database software is $18,000. In addition, there is a $6,500 annual fee for updates and support. A team of three programmers would require 4 months to create the application. Each programmer is paid $40,000 per year. Data conversion costs are estimated at $6,000. The system is expected to reduce inventory carrying costs of $1,000 per month for the first year and $1,100 per month for the second year. After that, the cost reduction will be $1200 per month. In addition, long distance telephone costs of $700 per month will also be reduced.

Assume a discount rate of 10%.

Calculate the payback period.