Olinick Corporation is considering a project that would require an investment of $289,000 and would last for 8 years. The incremental annual revenuesand expenses generated by the project during those 8 years would be as follows (Ignore income taxes.):Sales$254,00024,000Variable expenses230,000Contribution marginFixed expenses:Salaries27,000Rents40,000Depreciation35,000Total fixed expenses102,000$128,000Net operating incomeThe scrap value of the project's assets at the end of the project would be $17,000. The cash inflows occur evenly throughout the year. The paybackperiod of the project is closest to: (Round your answer to 1 decimal place.) Multiple Choice2.1 years2.3 years1.5 years1.8 years

Payback period calculates the time period within which a project recovers its initial investment.

Answered: penses: S 27,000 40,000 ation 35,000…

penses: S 27,000 40,000 ation 35,000 102,000 xed expenses ating income $128,000 ue of the project's assets at the end of the project would be $17,000. The cash in

Principles of Accounting Volume 2

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ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 19EA: Redbird Company is considering a project with an initial investment of $265,000 in new equipment...

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

Question

Olinick Corporation is considering a project that would require an investment of $289,000 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.):
Sales
$254,000
24,000
Variable expenses
230,000
Contribution margin
Fixed expenses:
Salaries
27,000
Rents
40,000
Depreciation
35,000
Total fixed expenses
102,000
$128,000
Net operating income
The scrap value of the project's assets at the end of the project would be $17,000. The cash inflows occur evenly throughout the year. The payback
period of the project is closest to: (Round your answer to 1 decimal place.)

Multiple Choice
2.1 years
2.3 years
1.5 years
1.8 years

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