Question

Investing $2,000,000 in TOM's Channel Support Systems initiative will at a minimum increase demand for your products 3.0% in this and in all future rounds. (Refer to the TOM Initiative worksheet in the CompXM Decisions menu.) Looking at the Round 0 Inquirer for Andrews. last year?s sales were $163,189,230. Assuming similar sales next year. the 3.0% increase in demand will provide $4,895,677 of additional revenue. With the overall contribution margin of 34.1%. after direct costs this revenue will add $1,669,426 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 $2,000,000 TQM investment, rounded to the nearest month?

a) TOM investment will not have a significant financial impact
b) 5 months
c) 14 months
d) 10 months

Answer 1

c) 14 months

Step-by-step explanation:

Initial investment = $2,000,000

Revenue = $1,669,426

Profit = $2,000,000 - $1,669,426 = $330,574

Payback period = 1 + [Profit/Revenue]

Payback period = 1 + [$330,574/$1,669,426]

Payback period = 1 + 0.198017

Payback period = 1.198017 years

Payback period = 1.198017 * 12 months

Payback period = 14.376204 months

Payback period = 14 months approximately.