Question

. What is the project’s payback period? (Round your answer to 2 decimal places.)

Required information [The following information applies to the questions displayed below.) Cardinal Company is considering a five-year project that would require a $2,750,000 investment in equipment with a useful life of five years and no salvage value. The company's discount rate is 18%. The project would provide net operating income in each of five years as follows: $ 2,849,000 1, 122,000 1,727,000 Sales Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs Depreciation Total fixed expenses Net operating income $ 752,000 550,000 1,302,000 425,000 $ Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using table. 7. What is the project's payback period? (Round your answer to 2 decimal places.)

Answer 1

Payback period = 2.82 years

Working

Payback Period
	Choose Numerator	/	Choose Denominator	=	Payback Period
	Initial Investment	/	Net annual cash inflow	=	Payback Period
	$ 2,750,000	/	$ 975,000	=	2.82

.

Net income	$    425,000.00
Add: Depreciation	$    550,000.00
Net annual cash inflow	$    975,000.00

.Depreciation is a non cash expense hence it is added to net income to get net cash inflow from investment in a year.