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Play Products is considering producing toy action figures and sandbox toys. The products require different specialized​ machines, each costing ​$1.4million. Each machine has a​ five-year life and zero residual value. The two products have different patterns of predicted net cash​ inflows:  Play will consider making capital investments only if the payback period of the project is less than 3.5 years and the ARR exceeds​ 8%. Annual Net CashAnnual  Inflows Year Toy action figure project Sandbox toy project Year 1. . . . . . . . . . . $305,450 $550,000 Year 2. . . . . . . . . . . 305,450 350,000 Year 3. . . . . . . . . . . 305,450 310,000 Year 4. . . . . . . . . . . 305,450 270,000 Year 5. . . . . . . . . . . 305,450 25,000 Total $1,527,250 $1,505,000 Calculate the toy action figure​ project's payback period. If the toy action figure project had a residual value of $150,000​,would the payback period​ change? Explain and recalculate if necessary. Does this investment pass Plays payback period screening​ rule?

Play Products is considering producing toy action figures and sandbox toys. The products require different specialized​ machines, each costing ​$1.4million. Each machine has a​ five-year life and zero residual value. The two products have different patterns of predicted net cash​ inflows:  Play will consider making capital investments only if the payback period of the project is less than 3.5 years and the ARR exceeds​ 8%. Annual Net CashAnnual  Inflows Year Toy action figure project Sandbox toy project Year 1. . . . . . . . . . . $305,450 $550,000 Year 2. . . . . . . . . . . 305,450 350,000 Year 3. . . . . . . . . . . 305,450 310,000 Year 4. . . . . . . . . . . 305,450 270,000 Year 5. . . . . . . . . . . 305,450 25,000 Total $1,527,250 $1,505,000 Calculate the toy action figure​ project's payback period. If the toy action figure project had a residual value of $150,000​,would the payback period​ change? Explain and recalculate if necessary. Does this investment pass Plays payback period screening​ rule?

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Play Products is considering producing toy action figures and sandbox toys. The products require different specialized​ machines, each costing ​$1.4million. Each machine has a​ five-year life and zero residual value. The two products have different patterns of predicted net cash​ inflows: 
Play will consider making capital investments only if the payback period of the project is less than 3.5 years and the ARR exceeds​ 8%.
Annual Net CashAnnual  Inflows
Year
Toy action figure project
Sandbox toy project
Year 1. . . . . . . . . . .
$305,450
$550,000
Year 2. . . . . . . . . . .
305,450
350,000
Year 3. . . . . . . . . . .
305,450
310,000
Year 4. . . . . . . . . . .
305,450
270,000
Year 5. . . . . . . . . . .
305,450
25,000
Total
$1,527,250
$1,505,000

Calculate the toy action figure​ project's payback period. If the toy action figure project had a residual value of $150,000​,would the payback period​ change? Explain and recalculate if necessary. Does this investment pass Plays payback period screening​ rule?

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