Investing $2,000,000 in TQM\'s Channel Support Systems initiative will at a mini
ID: 1152514 • Letter: I
Question
Investing $2,000,000 in TQM's Channel Support Systems initiative will at a minimum increase demand for your products 3.0% in this and in all future rounds. (Refer to the TQM Initiative worksheet in the CompXM Decisions menu.) Looking at the Round 0 Inquirer for Andrews, last year's sales were $163,189,230. Assuming similar sales next year, the 3.0% increase in demand will provide S4,895,677 of additional revenue. With the overall contribution margin of 34.1%, after direct costs this revenue will add $1,669,426 to the bottom line. For simplicity, assume that the demand increase and margins will remain at last year's levels. How long will it take to achieve payback on the initial $2,000,000 TQM investment, rounded to the nearest month? Select: 1 Save Answer 10 months 14 months TQM investment will not have a significant financial impact 5 monthsExplanation / Answer
Solution: 14 months
Working:
Year
Investment
New Revenue
Revenue Increase
Contribution Margin Increase
Net Cash Flow
Balance
0
$ (2,000,000.00)
$ (2,000,000.00)
$ (2,000,000.00)
1
168,084,906.90
4,895,676.90
1,669,425.82
1,669,425.82
$ (330,574.18)
2
173,127,454.11
5,042,547.21
1,719,508.60
1,719,508.60
$ 1,388,934.42
Year
Investment
New Revenue
Revenue Increase
Contribution Margin Increase
Net Cash Flow
Balance
0
$ (2,000,000.00)
$ (2,000,000.00)
$ (2,000,000.00)
1
163189230 * 1.03
163189230 * 0.03
4895676.90*0.341
4895676.90*0.341
(2,000,000) + 4895676.90
2
168,04,906.90 *1.03
173,127,454 - 168,084,906.90
5,042,547.21*0.341
5,042,547.21*0.341
(330,574.18) + 1719,508.6
?
Details
Year of payback
1
Portion of year of payback
0.19
1,719,508.60/ 330574.18
Year and portion of year
1.19
1 + 0.19
Year in months
12
Portion of year in months
2.3
0.19 * 12
Year and portion of year in months
14.3
12 + 2.31
Year
Investment
New Revenue
Revenue Increase
Contribution Margin Increase
Net Cash Flow
Balance
0
$ (2,000,000.00)
$ (2,000,000.00)
$ (2,000,000.00)
1
168,084,906.90
4,895,676.90
1,669,425.82
1,669,425.82
$ (330,574.18)
2
173,127,454.11
5,042,547.21
1,719,508.60
1,719,508.60
$ 1,388,934.42
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