Jack is considering adding toys to his general store.He estimates that the cost of inventory will be $4,200.The remodeling and shelving costs are estimated at $1,500.Toy sales are expected to produce net cash inflows of $1,200, $1,500, $1,600, 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 3.80 years.
D)no; because the payback period is 2.02 years.
E)no; because the payback period is 3.80 years.

Question

Quizplus · Accepted Answer

The total initial investment is $5,700 ($4,200 for inventory + $1,500 for remodeling). The cumulative cash inflows over the first three years are $4,300 ($1,200 + $1,500 + $1,600), which is less than the initial investment. The payback period extends into the fourth year, making it 3.80 years, which exceeds the three-year requirement.

Jack Is Considering Adding Toys to His General Store