Question

Investing $1,500,000 in TQM's Channel Support Systems initiative will at a minimum increase demand for your products 1.5% in this and in all future rounds. Last year's sales were $150,000,000. Assuming similar sales next year, the 1.5% increase in demand will provide $2,250,000 of additional revenue. With the overall contribution margin of 32.1%, after direct costs this revenue will add $722,250 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 $1,500,000 TQM investment, rounded to the nearest month?

a) 32 months

b) 25 months

c) TQM investment will not have significant impact

d) 15 months

Answer 1

	Computation of pay back period
	Payback period=	Initial investments
		Annual cash flow
	Payback period=	1,500,000
		722,250
	Payback period=	2.076843198
	Payback period=	2.07684319833853*12 months
	Payback period=	24.9221183800623 Months
	Payback period=	25 Months
	So option B is the correct answer