(Ignore income taxes in this problem.) Czaplinski Corporation is considering a p

Question

(Ignore income taxes in this problem.) Czaplinski Corporation is considering a project that would require an investment of $1,323,000 and would last for 5 years. The incremental annual revenues and expenses generated by the project during those 5 years would be as follows:

45,000

289,000

123,000

198,000  

$91,000  

The scrap value of the project's assets at the end of the project would be $62,000. The payback period of the project is closest to:

14.5 years

6.2 years

7.2 years

14.1 years

  Sales $334,000   Variable expenses

45,000

  Contribution margin

289,000

  Fixed expenses:      Salaries 44,000      Rents 31,000        Depreciation

123,000

  Total fixed expenses

198,000  

  Net operating income

$91,000  

Explanation / Answer

Investment    1,323,000 Sales $334,000   Variable expenses 45,000   Contribution margin 289,000   Fixed expenses:      Salaries 44,000      Rents 31,000        Depreciation 123,000   Total fixed expenses 198,000     Net operating income $91,000 Add: dep $123,000 Cashflow $214,000 Payback period                 6.2 years

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