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As the head of Human Resources at Harris Light & Magic Corporation, Renée is determined to increase the wealth of the company. She was approached by Segler Executive Management Retreats, Inc-a company specializing in executive training. Segler is offering, for an upfront payment of $75,000, to design an executive program for Harris' 15 managers. Once the program is designed, the company's 15 managers will be scheduled to fly to a retreat in Bermuda to acquire expert knowledge in productivity. It is expected that the program will improve the company's Magic Division revenues by 1%, or $500,000, each year for five years. However, with all this focus on expanding the Magic revenues, Renée expects the Light Division's sales to decline by 0.75%, or $175,000, each year. After five years, the acquired knowledge would be obsolete and the revenues for the two product lines would return to previous levels. Renée also believes that a retreat of this nature would reduce Harris' manager turnover by 1 manager each year. When a manager does not turnover, Renée does not have to run ads at a cost of $4,500 each instance. The cost of flying each manager first-class to the retreat is expected to be $1,500 round trip. Lodging, meals, and incidental expenses are expected to cost $600 per manager per day for the seven day retreat. The company has a tax rate is 31%. Its depreciation method is straight-line. The company paid a dividend to shareholders of $1 per share last year and is expect to do the same over the next five years. Harris Light & Magic Corporation is traded on the New York Stock Exchange and currently has 100,000 outstanding shares, owned by 17,546 shareholders. Variable costs for the Magic and Light divisions are 65% and 30% of sales revenue, respectively. What is the payback for this project?

A. 2.73

B. 2.82

C. 3.05

D. 3.21

E. 3.26

F. 4.08

G. 5.2

H. does not payback

Basic Finance, Finance

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