Jack is considering adding toys to his general store. He estimates the cost of toy inventory will be $4,200. The remodeling and
shelving costs are estimated at $1,500. Toy sales are expected to produce net annual cash inflows of $1,200, $1,500, $1,600, and $1,750 over the next four years, respectively. Should Jack add toys to his merchandise if he requires a three-year payback period
1 answer:
Answer:
No. The duration for payback is 3.8 years.
Explanation:
The payback period indicates the time required to recover the funds invested in a project through accumulated cash flow.
The total investment amounts to $4,200 + $1,500 = $5,700.
Refer to the attached image for a detailed breakdown of how the payback period was determined.
The payback period is calculated as 3 years + 1400/1750 = 3.8 years.
Since 3.8 years exceeds the desired 3-year payback period, Jack should not proceed with the project.
I hope my answer is helpful.
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