(Ignore income taxes in this problem.) Czaplinski Corporation is considering a p

Question

(Ignore income taxes in this problem.) Czaplinski Corporation is considering a project that would require an investment of $873,000 and would last for 5 years. The incremental annual revenues and expenses generated by the project during those 5 years would be as follows:

31,500

203,500

87,000

139,500

$64,000

Sales $235,000 Variable expenses

31,500

Contribution margin

203,500

Fixed expenses: Salaries 30,500 Rents 22,000 Depreciation

87,000

Total fixed expenses

139,500

Net operating income

$64,000

Explanation / Answer

Initial cash flow = 873000

Cash flow for 5 years = operating income + depreciation = 64000+87000 = 151000

Scrap = 44000

Pay back period = NPV of the project is negative.

So pay back period does not exist for this particular oppurtunity.

As the firm is not able to cover its intial cost.

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