Ask Question
3 September, 13:59

Olinick Corporation is considering a project that would require an investment of $289,000 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$254,000 Variable expenses 24,000 Contribution margin 230,000 Fixed expenses: Salaries 27,000 Rents 40,000 Depreciation 35,000 Total fixed expenses 102,000 Net operating income$128,000 The scrap value of the project's assets at the end of the project would be $17,000. The cash inflows occur evenly throughout the year. The payback period of the project is closest to: (Round your answer to 1 decimal place.) Noreen_5e_Rechecks_2019_10_16 Multiple Choice 1.8 years 2.3 years 2.1 years 1.5 years

+5
Answers (1)
  1. 3 September, 16:15
    0
    1.8 years

    Explanation:

    the net cash flow per year = [ (total sales revenue - total costs) x (1 - tax rate) ] + depreciation

    total sales revenue = $254,000 total costs = $126,000 depreciation costs = $35,000 taxes = 0

    the net cash flow per year = $254,000 - $126,000 + $35,000 = $163,000

    the payback period = total investment / net cash flow = $289,000 / $163,000 = 1.77 years, which is closest to 1.8 years

    The payback period is the time it takes the project to recover the initial investment required to carry it out.
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “Olinick Corporation is considering a project that would require an investment of $289,000 and would last for 8 years. The incremental ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers