Question = The Manager is confused as to why the payback period is shorter than the useful life of the terminals. His reasoning is that if he has paid back the terminals then they are no longer generating him any cash flows and are no longer useful. Explain to the manager why the useful life of the terminals and the payback period differ.

Alberto's Pizzeria is considering purchasing six (6) instore terminals that would allow customers to order their pizza digitally rather than queuing to order at the counter. The Manager is excited by this idea as it means lower wait times for customers and a reduction in wages paid. By installing this computer, they would be able to make one of their casual front of house staff redundant. The details of the computer are as follows: Cost of acquiring the digital ordering $120,000 systems Annual insurance costs for the $1,500 terminals Annual software subscription for the $1,000 terminals Fixed price maintenance contract for $2,500 the terminals Annual front of house wages for one $17,000 employee Expected useful life of the terminal 9 years Expected residual value at the end of $20,000 the terminal's life Discount rate 10% Term of loan to finance terminals 6 years