PLEASE SHOW YOUR WORK/ WORK OUT THE PROBLEM Kautzer corporation is considering a

Question

PLEASE SHOW YOUR WORK/ WORK OUT THE PROBLEM

Kautzer corporation is considering a project that would require an investment of $418,000 and would last for 9 years. The incremental annual revenues and expenses generated by the project during those 9 years would be as follows:

The scrap value of the project's assets at the end of the project would be $13,000. The payback period of the project is closest to:

A. 5.9 years

B. 6.1 years

C. 17.4 years

D. 16.9 years

Sales $111,000 Less variable expenses 11,000 Contribution margin 100,000 Less fixed expenses Salaries 12,000 Rents 19,000 Depreciation 45,000 Total fixed expenses 76,000 Net operating income $24,000

Explanation / Answer

Answer:

Initial Investment = $418,000

Annual cash flows = Net operating Income + Depreciation = $24,000 + $45,000 = $69,000

Payback period = Intial Investment / Annual Cash flows = 418,000 / 69,000 = 6.1 years.

Answer : B : 6.1 Years.

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