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 payback period is 3.8 years
Explanation:
The payback period measures how long it takes for the amount invested in a project to be recovered from the cumulative cash flows.
The amount invested = $4,200 + $1,500 = $5,700
Please check the attached image for an explanation on how the payback period was calculated.
Pay back period = 3 years + 1400/1750 = 3.8 years.
3.8 years is greater than the required 3 years Payback period. Therefore, Jack shouldn't accept the project.
I hope my answer helps you
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