Jack is considering adding toys to his general store.He estimates that the cost of inventory will be $4,200.The remodeling expenses and shelving costs are estimated at $1,500.Toy sales are expected to produce net cash inflows of $1,300,$1,600,$1,700,and $1,750 over the next four years,respectively.Should Jack add toys to his store if he assigns a three-year payback period to this project?
A)Yes; because the payback period is 2.94 years
B)Yes; because the payback period is 2.02 years
C)Yes; because the payback period is 3.63 years
D)No; because the payback period is 2.02 years
E)No; because the payback period is 3.63 years

Question

Quizplus · Accepted Answer

The total initial investment is $4,200 + $1,500 = $5,700. The cumulative cash inflows over the first three years are $1,300 + $1,600 + $1,700 = $4,600, which is less than $5,700. By the end of the fourth year, the cumulative cash inflows are $6,350, which exceeds the initial investment. Therefore, the payback period is between 3 and 4 years, specifically 3.63 years, which exceeds the 3-year requirement.

Jack Is Considering Adding Toys to His General Store