(Ignore income taxes in this problem.) Rogers Company is studying a project that

Question

(Ignore income taxes in this problem.) Rogers Company is studying a project that would have a ten-year life and would require an $2,000,000 investment in equipment which has no salvage value. The project would provide net operating income each year as follows for the life of the project:

190,000

128,000

568,000

$342,000

The company's required rate of return is 8%. What is the payback period for this project? (Round your answer to two decimal places.)

4.26 years

3.17 years

2.20 years

5.85 years

  Sales $1,100,000   Less cash variable expenses

190,000

  Contribution margin 910,000   Less fixed expenses:   Fixed cash expenses $440,000   Depreciation expenses

128,000

568,000

  Net operating income

$342,000

Explanation / Answer

4.26 years

Cash inflows =net operating income+Depreciation expenses=342,000+128,000=470,000

the payback period for this project=Net investment/Annual cash inflows=2,000,000/470,000=4.26 years

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