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: Multiple Choice a. 3.0 years b. 5.1 years c. 3.2 years d. 4.8 years

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Business

Tamara Salas

8 November, 05:27

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: Multiple Choice a. 3.0 years b. 5.1 years c. 3.2 years d. 4.8 years

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Answers (1)

Know the Answer?

Kason Evans · Answer 1

Option (c) is correct.

Explanation:

Given that,

Net operating income = $67,000

Depreciation = $40,000

Required investment = $343,000

Annual net cash flows:

= Net operating income + Depreciation

= $67,000 + $40,000

= $107,000

Payback period of the project:

= Required investment : Annual net cash flows

= $343,000 : $107,000

= 3.2 years

Therefore, the payback period of the project is closest to 3.2 years.