Assume that you are thinking about starting your own small business. You have made the following estimates regarding this opportunity: . You can rent a location for your business at a cost of $36,000 per year. • The equipment costs incurred to start the business would total $250,000. The equipment would have a 5-year useful life and a salvage value of $25,000. • Your company's estimated sales per year would equal $350,000 and its variable cost of goods sold would be 30% of sales. • Other operating costs would include $69,000 per year in salaries, $4,000 per year for insurance, $25,000 per year for utilities, and a 3% sales commission. The payback period for this investment opportunity is closest to:

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Assume that you are thinking about starting your own small business. You have made the following estimates regarding this opportunity:
• You can rent a location for your business at a cost of $36,000 per year.
• The equipment costs incurred to start the business would total $250,000. The equipment would have a 5-year useful life and a
salvage value of $25,000.
• Your company's estimated sales per year would equal $350,000 and its variable cost of goods sold would be 30% of sales.
• Other operating costs would include $69,000 per year in salaries, $4,000 per year for insurance, $25,000 per year for utilities, and
a 3% sales commission.
The payback period for this investment opportunity is closest to:
Transcribed Image Text:Assume that you are thinking about starting your own small business. You have made the following estimates regarding this opportunity: • You can rent a location for your business at a cost of $36,000 per year. • The equipment costs incurred to start the business would total $250,000. The equipment would have a 5-year useful life and a salvage value of $25,000. • Your company's estimated sales per year would equal $350,000 and its variable cost of goods sold would be 30% of sales. • Other operating costs would include $69,000 per year in salaries, $4,000 per year for insurance, $25,000 per year for utilities, and a 3% sales commission. The payback period for this investment opportunity is closest to:
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