Olinick Corporation is considering a project that would require an investment of $354,000 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 210,000

Variable expenses 22,000

Contribution Margin 188,000

Fixed expenses:

Salaries 40,000

Rents 53,000

depreciation 48,000

Total fixed expenses 141,000

Net Operating Income 47,000

The scrap value of the project's assets at the end of the project would be $30,000. The cash inflows occur evenly throughout the year. The payback period of the project is closest to:

3.7 years

7.5 years

4.8 years

3.5 years

Question

Business

Ashlyn Waller

27 March, 09:27

Olinick Corporation is considering a project that would require an investment of $354,000 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 210,000

Variable expenses 22,000

Contribution Margin 188,000

Fixed expenses:

Salaries 40,000

Rents 53,000

depreciation 48,000

Total fixed expenses 141,000

Net Operating Income 47,000

The scrap value of the project's assets at the end of the project would be $30,000. The cash inflows occur evenly throughout the year. The payback period of the project is closest to:

3.7 years

7.5 years

4.8 years

3.5 years

+1

Answers (1)

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Tran · Answer 1

3.7 years

Explanation:

Given that,

Initial investment = $354,000

Net income = $47,000

Depreciation = $48,000

Annual cash flow:

= Net income + Depreciation

= $47,000 + $48,000

= $95,000

Payback period:

= Initial investment : Annual cash flow

= $354,000 : $95,000

= 3.7 years

The payback period of the project is closest to 3.7 years.