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What is the payback period for Olinick Corporation's project?

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Question 26: (2 points)
(Ignore income taxes in this problem.) Olinick Corporation is considering a project that would require an investment of $243,000 and would last for 8 years. The incremental annual revenues and expenses generated by the project during those 10 years would be as follows:

Sales $272,000
Variable expenses 49,000
Contribution margin 223,000
Fixed expenses:
Salaries 33,000
Rents 35,000
Depreciation 20,000
Total fixed expenses 88,000
Net operating income $135,000

The scrap value of the project's assets at the end of the project would be $20,000. The payback period (by using Payback Method) of the project is closest to:

3.4 years
1.6 years
4.3 years
2.8 years

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Solution Summary

This solution shows how to determine the payback period with the formula and simple calculations.