Tom Falkland is considering refinancing his home mortgage to reduce his house payment by $125 per month.

Question:

Tom Falkland is considering refinancing his home mortgage to reduce his house payment by $125 per month. Closing costs associated with the refinancing will total $5,000. Tom will finish medical school in four years, at which time he will sell the house and move to another state.

Required

a. What is the payback period for refinancing this loan?

b. Given Tom's plans, should he refinance his mortgage at this time? Why or why not?

Payback Period
Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...