Al’ain Corporation is studying a project that would have a ten-year life and would require a $420,000 investment in equipment that has no salvage value. The project would provide net operating income each year as follows for the life of the project: Sales $ 400,000Less cash variable expenses 100,000Contribution margin 300,000Less fixed expenses: Fixed cash expenses$ 160,000 Depreciation expenses40,000200,000Net operating income $ 100,000 The company's required rate of return is 12%. The payback period for this project is closest to: 3 years 2 years 3.5 years 5 years

Payback period =Initial investmentAnnual cash flows Initial investment =$420000 Annual cash flows…

Answered: Al’ain Corporation is studying a…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Al’ain Corporation is studying a project that would have a ten-year life and would require a $420,000 investment in equipment that has no salvage value. The project would provide net operating income each year as follows for the life of the project:

Sales		$ 400,000
Less cash variable expenses		100,000
Contribution margin		300,000
Less fixed expenses:
Fixed cash expenses	$ 160,000
Depreciation expenses	40,000	200,000
Net operating income		$ 100,000

The company's required rate of return is 12%. The payback period for this project is closest to:

		3 years
		2 years
		3.5 years
		5 years

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