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(Ignore income taxes in this problem.) The management of Helberg Corporation is

ID: 2485820 • Letter: #

Question

(Ignore income taxes in this problem.) The management of Helberg Corporation is considering a project that would require an investment of $231,000 and would last for 6 years. The annual net operating income from the project would be $121,000, which includes depreciation of $34,000. The scrap value of the project's assets at the end of the project would be $20,200. The cash inflows occur evenly throughout the year. The payback period of the project is closest to:

1.5 years

1.9 years

1.3 years

1.6 years

Explanation / Answer

The payback period of the project is closest to: 1.5 years Net Income                              121,000.00 Add : Depreciation                                34,000.00 Cash Flows after depreciation                              155,000.00 PBP Time Amount Cumulative                                                            -                              (231,000.00)                              (231,000.00)                                                       1.00                              155,000.00                                 (76,000.00)                                                       2.00                              155,000.00                                   79,000.00                                                       3.00                              155,000.00                                 234,000.00                                                       4.00                              155,000.00                                 389,000.00                                                       5.00                              155,000.00                                 544,000.00                                                       6.00                              175,200.00                                 719,200.00 PBP= 1 + 76,000/155,000 PBP= 1.49 Years PBP= 1.5 Years Approx