Question

Alicia is considering adding toys to her gift shop. She estimates that the cost of inventory will be $7,500. The remodeling expenses and shelving costs are estimated at $1,500. Toy sales are expected to produce net cash inflows of $2,800, $2,900, $3,400, and $3,500 over the next four years, respectively. Should Alicia add toys to her store if she assigns a three-year payback period to this project? Why or why not?

A. No; The payback period is 3.26 years.

B. Yes; The payback period is 2.97 years.

C. Yes; The payback period is 2.75 years.

D. No; The payback period is 3.01 years.

Answer 1

Payback period:

Yes; The payback period is 2.97 years.

As the payback period is less than 3 years. Accept the project.

Formulas:

Thank you.