Buxton Corporation is evaluating a capital investment project which would requir

Question

Buxton Corporation is evaluating a capital investment project which would require an initial investment of $260,000 to purchase new machinery. The annual revenues and expenses generated specifically by this project each year during the project's nine year life would be Sales Variable expenses Contribution margin Fixed expenses Salaries expense Rent expense Depreciation expense Total fixed expenses Operating income $165,000 $41,000 $124,000 $30,000 $26,000 $21,000 $77,000 $47,000 ? A. 5.5 O B. 2.1 O C. 10.0 ? D. 3.8

Explanation / Answer

Answer

The payback period = Total Investment/Annual cash flows

The payback period = $260000 / ($47000+$21000)

=$260000 / $68000

=3.82 Years =3.8

Hence option D is correct.

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