Investing $1,500,000 in TQM\'s Channel Support Systems initiative will at a mini

Question

Investing $1,500,000 in TQM's Channel Support Systems initiative will at a minimum increase demand for your products 1.7% in this and in all future rounds. (Refer to the TQM Initiative worksheet in the CompXM Decisions menu.) Looking at the Round 0 Inquirer for Andrews, last year's sales were $163,712,225. Assuming similar sales next year, the 1.7% increase in demand will provide $2,783,108 of additional revenue. With the overall contribution margin of 34.2%, after direct costs this revenue will add $951,823 to the bottom line. For simplicity, assume that the demand increase and margins will remain at last year's levels. How long will it take to achieve payback on the initial $1,500,000 TQM investment, rounded to the nearest month? Select: 1 6 months 19 months TQM investment will not have a significant financial impact 13 months

Explanation / Answer

Since the revenue that will add to the bottom line at the end of the year = $951823

revenue for each month = 951823/12 = $79318.58

Let the number of months for payback be x.

Therefore, x*78318.58 = 1500000 => x = 18.91 = 19 months (approximately)

Thus it takes 19 months to achieve payback on the initial $1,500,000 TQM investment

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