Olinick Corporation is considering a project that would require an investment of
ID: 2535096 • Letter: O
Question
Olinick Corporation is considering a project that would require an investment of $309,000 and would last for 8 years. The incremental annual revenues and expenses generated by the project during those 8 years would be as follows (Ignore income taxes.):
The scrap value of the project's assets at the end of the project would be $21,000. The cash inflows occur evenly throughout the year. The payback period of the project is closest to:
a. 2.3 years
b. 2.8 years
c. 3.2 years
d. 2.2 Years
Sales $ 235,000 Variable expenses 24,000 Contribution margin 211,000 Fixed expenses: Salaries 31,000 Rents 44,000 Depreciation 39,000 Total fixed expenses 114,000 Net operating income $ 97,000Explanation / Answer
a. 2.3 years PBP Time Amount Cumulative - (309,000.00) (309,000.00) 1.00 136,000.00 (173,000.00) 2.00 136,000.00 (37,000.00) 3.00 136,000.00 99,000.00 4.00 136,000.00 235,000.00 5.00 136,000.00 371,000.00 6.00 136,000.00 507,000.00 7.00 136,000.00 643,000.00 8.00 157,000.00 800,000.00 PBP= 2 + 37000/136000 PBP= 2 + .27 Years PBP= 2.27 Years or 2.3 Years approx
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