Assume that a company buys a new machine for $220,000 that has a useful life of five years and a $20,000 salvage value. The new machine will replace an old machine that can be sold for a salvage value of $10,000. The machine will generate incremental contribution margin of $65,625 per year. The only fixed expense associated with the new machine is its annual depreciation of $40,000 per year. What is the payback period for this investment?

Multiple Choice

3.2 years

10.2 years

3.167 years

9.2 years