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3 April, 14:52

Investing $2,000,000 in TQM'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 TQM Initiative worksheet in the CompXM Decisions menu.) Looking at the Round 0 Inquirer for Andrews, last year's sales were $163,508,343. Assuming similar sales next year, the 3.0% increase in demand will provide $4,905,250 of additional revenue. With the overall contribution margin of 34.1%, after direct costs this revenue will add $1,672,690 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?

TQM investment will not have a significant financial impact

a. 14 months

b. 5 months

c. 10 months

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Answers (1)
  1. 3 April, 14:57
    0
    Option (a) is correct answer (14 Months)

    Explanation:

    Given data

    Investing in TQM = $2,000,000

    Minimum rise in demand = 3.0 %

    Last year's sales = $163,508,343

    As per the given data next year sales is increased by 3.0%. So, 3.0% of last year sales

    => 0.03 * $163,508,343 = $4,905,250.29 ~ = $4,905,250

    Income added to the bottom line = 34.1% of increased demand

    => 0.341 * $4,905,250 = $1,672,690.25~ = $1,672,690

    Payback on the initial $2,000,000 TQM investment can be attained in a period and can be computed by using the formula

    => (Investment in TQM / Revenue added to the bottom line) * 12

    => ($2,000,000 / $1,672,690) * 12 = 14.34 ~ = 14 Months
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