Nolan Company Would Like to Open an Office for Five

question 69

Essay

Nolan Company would like to open an office for five years in Southern California.The initial investment required to purchase an office building is $1,500,000,and Nolan needs $400,000 in working capital for the new office.Working capital will be released back to the company at the end of five years.The company expects to remodel the office at the end of 2 years at a cost of $180,000.The company only accepts projects that have a payback period of less than three years.Annual net cash receipts from daily operations (cash receipts minus cash payments)are expected to be as follows:
$\begin{array}{lr}\text { Year 1: } & \$ 720,000 \\\text { Year 2: } & \$ 760,000 \\\text { Year 3: } & \$ 1,000,000 \\\text { Year 4: } & \$ 1,190,000 \\\text { Year 5: } & \$ 1,220,000\end{array}$
(1)Calculate the payback period for this project rounded to the nearest month.Show your work.
(2)Should the company accept this proposal? Explain.

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Definitions:

Implicit Leadership

The theory that people have inherent beliefs and expectations about the qualities and behaviors that make an effective leader.

Organizational Leader

An individual who holds a position of authority within an organization and is responsible for decision-making and strategic direction.

Personal Assumptions

The presuppositions or beliefs one holds as true without empirical evidence, often influencing how they interpret situations and make decisions.

Position Power

The authority and influence a person possesses within an organization due to the rank or role they hold.