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Assume that you are thinking about starting your own small business. You have made the following estimates regarding this opportunity: • You can rent a location for your business at a cost of $36,000 per year. The equipment costs incurred to start the business would total $250,000. The equipment would have a 5-year useful life and a salvage value of $25,000. • Your company's estimated sales per year would equal $350,000 and its variable cost of goods sold would be 30% of sales. • Other operating costs would include $60,000 per year in salaries, $4,000 per year for insurance, $25,000 per year for utilities, and a 3% sales commission. The payback period for this investment opportunity is closest to: 3.88 years. O 3.20 years 2.28 years. 4.20 years.

Assume that you are thinking about starting your own small business. You have made the following estimates regarding this opportunity: • You can rent a location for your business at a cost of $36,000 per year. The equipment costs incurred to start the business would total $250,000. The equipment would have a 5-year useful life and a salvage value of $25,000. • Your company's estimated sales per year would equal $350,000 and its variable cost of goods sold would be 30% of sales. • Other operating costs would include $60,000 per year in salaries, $4,000 per year for insurance, $25,000 per year for utilities, and a 3% sales commission. The payback period for this investment opportunity is closest to: 3.88 years. O 3.20 years 2.28 years. 4.20 years.

FINANCIAL ACCOUNTING
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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Assume that you are thinking about starting your own small business. You have made the following estimates regarding this opportunity: • You can rent a location for your business at a cost of $36,000 per year. • The equipment costs incurred to start the business would total $250,000. The equipment would have a 5-year useful life and a salvage value of $25,000. • Your company's estimated sales per year would equal $350,000 and its variable cost of goods sold would be 30% of sales. • Other operating costs would include $60,000 per year in salaries, $4,000 per year for insurance, $25,000 per year for utilities, and a 3% sales commission. The payback period for this investment opportunity is closest to: O 3.88 years. 3.20 years 2.28 years. 4.20 years.
Transcribed Image Text:Assume that you are thinking about starting your own small business. You have made the following estimates regarding this opportunity: • You can rent a location for your business at a cost of $36,000 per year. • The equipment costs incurred to start the business would total $250,000. The equipment would have a 5-year useful life and a salvage value of $25,000. • Your company's estimated sales per year would equal $350,000 and its variable cost of goods sold would be 30% of sales. • Other operating costs would include $60,000 per year in salaries, $4,000 per year for insurance, $25,000 per year for utilities, and a 3% sales commission. The payback period for this investment opportunity is closest to: O 3.88 years. 3.20 years 2.28 years. 4.20 years.
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