Question 15 Olinick Corporation is considering a project that would require an i
ID: 2560323 • Letter: Q
Question
Question 15 Olinick Corporation is considering a project that would require an investment of $343,000 and would last for 8 years. The incremental annual revenues and expenses generated by the project during those 8 years would be as follows (Ignore income taxes.):
Sales $ 227,000
Variable expenses 52,000
Contribution margin 175,000
Fixed expenses:
Salaries 27,000
Rents 41,000
Depreciation 40,000
Total fixed expenses 108,000
Net operating income $ 67,000
The scrap value of the project's assets at the end of the project would be $23,000. The cash inflows occur evenly throughout the year. The payback period of the project is closest to:
3.0 years
5.1 years
3.2 years
4.8 years
Explanation / Answer
Annual net cash flows = 67000+40000 = 107000 Payback period =343000/107000= 3.2 option 3 is correct