Answer:
Payback period= 2 years, 7.53 months
If Susan assigns a 3 year payback period, the toys should be added.
This is so because, with a 3 year payback period, Susan would expect to recoup her investment within a three year period but the project would actually recoup its cash outflow in less than 3 years.
Since the actual payback period(2 year 7.5 months) is less than the target payback period (3 years), the investment should be undertaken
Explanation:
The payback period is the estimated length of time in years it takes
the net cash inflow from a project to equate the net cash the initial cost
The total cost of the investment =6,500+2,800 = 9300
Payback period
Cumulative cash inflow at the end of year two= 3,300+ $3,300= 6600
Balance left to recoup investment = 9,300 - 6,600 = 2,700
Payback period = 2 years + (2700/4300)× 12
= 2 years, 7.53 months
If Susan assigns a 3-year payback period, the toys should be added.
This is so because, with a 3-year payback period, Susan would expect to recoup her investment within a three-year period but the project would actually recoup its cash outflow in less than 3 years.
Since the actual payback period(2 year 7.5 months) is less than the target payback period (3 years), the investment should be undertaken. Because the project would recoup its investment faster than than the stipulated time.
Answer:
2.63 years or 2 years 7.56 months
Explanation:
Payback period is the time in which a project returns back the initial investment in the form of net cash flow.
Initial Investment includes all the expense made on an asset to make it usable.
Initial Investment = $6,500 + $2,800 = $9,300
Year Balance Recovery Time period
0 ($9,300) 0 0
1 ($6,000) $3,300 1
2 ($2,700) $3,300 1
3 $1,600 $2,700 0.63
Total Period 2.63 years
Payaback period = 2 years + 0.63 x 12 months = 2 years 7.56 months
