Czaplinski Corporation is considering a project that would require an investment

Question

Czaplinski Corporation is considering a project that would require an investment of $923,000 and would last for 7 years. The incremental annual revenues and expenses generated by the project during those 7 years would be as follows:   Sales $246,000   Variable expenses 33,000   Contribution margin 213,000   Fixed expenses:      Salaries 32,000      Rents 23,000        Depreciation 91,000   Total fixed expenses 146,000     Net operating income $67,000   The scrap value of the project's assets at the end of the project would be $46,000. The payback period of the project is closest to:

Explanation / Answer

Payback period = Intital investment / Net cash flow per year Initial investment 923000 Operating Income 67000 Add Depreciation 91000 Net cash flow 158000 Payback period = 923000/158000 = 5.84 years which is 5 years and 7 months

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