Leo is considering adding a deli to his general store.The remodelling expenses and shelving costs are estimated at $27,500.Deli sales are expected to produce net cash inflows of $7,300,$8,600,$9,700,and $9,750 for Years 1 to 4,respectively.Leo has a firm 3-year payback requirement.Should he add the deli?
A)Yes; because the payback period is 3.19 years
B)Yes; because the payback period is 2.82 years
C)No; because the project never pays back
D)No; because the payback period is 2.82 years
E)No; because the payback period is 3.19 years

Question

Quizplus · Accepted Answer

Payback period = 3 + ($27,500 - $7,300 - $8,600 - $9,700)/ $9,750 = 3.19 years; Reject; The deli should not be added.

Leo Is Considering Adding a Deli to His General Store