(Ignore income taxes in this problem.) Neighbors Corporation is considering a pr
ID: 2472387 • Letter: #
Question
(Ignore income taxes in this problem.) Neighbors 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:
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:
(Ignore income taxes in this problem.) Neighbors 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:
Explanation / Answer
Ans) Neighbors Corporation Sales $ 200,000.00 Variable Expenses $ 27,000.00 Contribution Margin $ 173,000.00 Fixed Expenses Salaries $ 34,000.00 Rents $ 47,000.00 Depreciation $ 42,000.00 Total Fixed Expenses $ 123,000.00 Net Operating income $ 50,000.00 Net Operating Income $ 50,000.00 Add: Non Cash deduction of Depreciation $ 42,000.00 Net annual cash inflow $ 92,000.00 Payback period =Investment required/Net annual cash inflow 3.5 Years
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