Question

Quintiles Corporation is considering a project that would require an investment of $343,000 and would last for 8 years. The incremental annual revenues and expenses generated by the project during those 8 years would be as follows (Assume a tax rate of 25% and that all sales are cash sales and all expenses are paid as incurred):

Sales.................................$227,000

Variable expenses......... 52,000

Contribution margin.......  175,000

Fixed expenses:

Salaries.........................27,000

Rents..............................41,000

Depreciation................ 42,875

Total fixed expenses.....110,875

Net operating income...$  64,125

The payback period of the project is closest to?

Answer 1

Payback	3.77	Years
(Initial Investment/cash flow per year)
($343,000/$90,968.75)
Operating income before tax	$64,125.00
Less: Tax @25%	$16,031.25
Operating income after tax	$48,093.75
Add: depreciaton (non-cash expense)	$42,875.00
Cash flow per year	$90,968.75