Question

Olinick Corporation is considering a project that would require an investment of $313,000 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 $ 250,000 Variable expenses 25,000 Contribution margin 225,000 Fixed expenses: Salaries 32,000 Rents 45,000 Depreciation 40,000 Total fixed expenses 117,000 Net operating income $ 108,000 The scrap value of the project's assets at the end of the project would be $22,000. The cash inflows occur evenly throughout the year. The payback period of the project is closest to: (Round your answer to 1 decimal place.) Multiple Choice 2.9 years 1.8 years 2.5 years 2.1 years

Answer 1

Based on the calculation below, the payback period of the project is closest to 2.1 years.

How to calculate payback period?

The payback period of the project can be calculated as follows:

Annual net cash inflow = Net operating income + Noncash deduction for depreciation = $108,000 + $40,000 = $148,000

Therefore, we have:

Payback period of the project = Required investment / Annual net cash inflow = $313,000 / $148,000 =  2.1 years

Learn more about the payback period here: brainly.com/question/13978071.

#SPJ1