(Ignore income taxes in this problem.) Flamio Corporation is considering a proje
ID: 2539564 • Letter: #
Question
(Ignore income taxes in this problem.) Flamio Corporation is considering a project that would require an initial investment of $210,000 and would last for 6 years. The incremental annual revenues and expenses for each of the 6 years would be as follows:
Sales $203,000
Variable expenses 45,000
Contribution margin 158,000
Fixed expenses:
Salaries $24,000
Rents 37,000
Depreciation 31,000
Total fixed expenses 92,000
Net operating income $66,000
At the end of the project, the scrap value of the project's assets would be $24,000. Required:
Determine the payback period of the project. Show your work!
PLease include the process.
Explanation / Answer
Payback period = Initial investment/annual cash flow
= 210000/97000
Payback period = 2.16 years
Annual cash flow = (66000+31000) = 97000
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