Question

Olinick Corporation is considering a project that would require an investment of $324,000 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 $ 200,000 Variable expenses 27,000 Contribution margin 173,000 Fixed expenses: Salaries 34,000 Rents 47,000 Depreciation 42,000 Total fixed expenses 123,000 Net operating income $ 50,000 The scrap value of the project's assets at the end of the project would be $24,000. The cash inflows occur evenly throughout the year. The payback period of the project is closest to: (

Answer 1

Answer:

Payback period = 3.5 years

Explanation:

Net income                           $50,000.00

Add: Depreciation expense $42,000.00

Net annual cash inflow      $92,000.00

Payback period = Initial investment / Annual cash inflows

= $324,000 / $92,000

= 3.5 years