Solution-How would operating income be affected

How would operating income be affected

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Q1. Flamingo Development is considering adding a new restaurant to one of its hotels. The following information is projected for this project:

Initial Investment $50,000

Annual Cash Flow $14,250

Project Term 5 years

Residual Value $2,000

The payback period is closest to?

A. 4.08 years

B. 3.37 years

C. 3.65 years

D. 3.51 years

Q2. Crafty Cushion makes mid-century modern sofas. The factory could accommodate up to 25,000 sofas per year, but is currently producing 15,000 based on customer demand. The information below pertains to its production for the current year.

Sales price per sofa $3,000

Variable costs per unit: Manufacturing $1,800

Sales and Administrative $250

Total fixed costs: Manufacturing $100,000

Sales and Administrative $75,000

A customer has offered a special order for 5,000 sofas at a price of $2,200 each. How would operating income be affected?

A. increase of $750,000

B. increase of $11,000,000

C. increase of $4,000,000

D. increase of $575,000

Reference no: EM132954318

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How would operating income be affected

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