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Question(s) / Instruction(s):

Jarvey Company is studying a project that would have a ten-year life and would require a $450,000 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                                                                         $500,000

Less cash variable expenses                                        200,000

Contribution margin                                                       300,000

Less fixed expenses:

Fixed cash expenses                      $150,000

Depreciation expenses                    45,000                   195,000

Net operating income                                                    $105,000

The company\'s required rate of return is 12%. What is the payback period for this project?

A.            3 years

B.            2 years

C.            4.28 years

D.            9 years

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