Harrison Company is studying a project that would have an eight-year life and would require a $300,000 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:
|
Sales
|
|
187,500
|
|
Less cash variable expenses
|
|
$112,500
|
|
Contribution margin
|
|
187,500
|
|
Less fixed expenses:
|
|
|
|
Fixed cash expenses
|
$150,000
|
|
|
Depreciation expenses
|
37,500
|
187,500
|
|
Net operating income
|
|
$112,500
|
The company"s required rate of return is 10%. What is the payback period for this project?
A) 3 years
B) 2 years
C) 2.5 years
D) 2.67 years