Buxton Corporation is evaluating a capital investment project which would requir
ID: 2533793 • Letter: B
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 $165,000 $41,000 $124,000 Sales Variable expenses Contribution margin Fixed expenses Salaries expense Rent expense Depreciation expense Total fixed expenses Operating income $30,000 $26,000 $21,000 $77,000 $47,000 OA. 5.5 ??. 2.1 O C. 10.0Explanation / Answer
Answer: 3.8
Annual cash flows = Contribution margin - salaries expense - rent expense = $ 124,000 - $ 30,000 - $ 26,000 = $ 68,000.
Payback period = Initial Investment / Annual Cash Flows = $ 260,000 / $ 68,000 = 3.8 years.
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