Flamingo Development is considering adding a new restaurant to one of its hotels.The following information is projected for this project:

Initial Investment$50,000Annual Cash Flow$14,250Project Term5 yearsResidual Value$2,000

The payback period is closest to:

A. 4.08 years

B. 3.37 years

C. 3.65 years

D. 3.51 years

Q2

Crafty Cushion makes mid-century modern sofas.The factory could accommodate up to 25,000 sofas per year, but is currently producing 15,000 based on customer demand. The information below pertains to its production for the current year.

Sales price per sofa$3,000Variable costs per unit:Manufacturing$1,800Sales and Administrative$250Total fixed costs:Manufacturing$100,000Sales and Administrative$75,000

A customer has offered a special order for 5,000 sofas at a price of $2,200 each.How would operating income be affected?(Note: fixed costs will remain the same and regular sales will not be impacted if the special order is accepted).

A. increase of $750,000

B. increase of $11,000,000

C. increase of $4,000,000

D. increase of $575,000