Question
Harrison Corporation is studying a project that would have an eight-year life and would require a $400,000 investment in equipment which has no salvage value.
Harrison Corporation is studying a project that would have an eight-year life and would require a $400,000 investment in equipment which has no salvage value. The project would provide net operating income each year as follows for the life of the project:
Sales |
| $500,000 |
Less cash variable expenses |
| 200,000 |
Contribution margin |
| 300,000 |
Less fixed expenses: |
|
|
Fixed cash expenses | $150,000 |
|
Depreciation expenses | 37,500 | 187,500 |
Net operating income |
| $112,500 |
The company's required rate of return is 10%. The payback period for this project is closest to:
A. |
| ||
B. |
| ||
C. |
| ||
D. |
|
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