Question

Score: 0 of 1 pt 5 of 14 (0 complete) v HW Score: 0%, 0 of 14 pts P9-21 (similar to) Question Help Comparing all methods. Given the following after-tax cash flow on a new toy for Tyler's Toys, find the project's payback period, NPV, and IRR. The appropriate discount rate for the project is 8%. If the cutoff period is 6 years for major projects, determine whether management will accept or reject the project under the three different decision models. (Click on the following icon in order to copy its contents into a spreadsheet.) Initial cash outflow: $12,700,000 Years one through four cash inflow: $3,175,000 each year Year five cash outflow: $1,270,000 Years six through eight cash inflow: $558,333 each year What is the payback period for the new toy at Tyler's Toys? years (Round to two decimal places.)

Answer 1

Payback period is the period in which initial investment is recovered.

Year	Opening Bal	CF	Closing Bal
1	$ 1,27,00,000.00	$ 31,75,000.00	$      95,25,000.00
2	$    95,25,000.00	$ 31,75,000.00	$      63,50,000.00
3	$    63,50,000.00	$ 31,75,000.00	$      31,75,000.00
4	$    31,75,000.00	$ 31,75,000.00	$                          -
5	$                        -	$ -12,70,000.00	$      12,70,000.00
6	$    12,70,000.00	$     5,58,333.00	$        7,11,667.00
7	$      7,11,667.00	$     5,58,333.00	$        1,53,334.00
8	$      1,53,334.00	$     5,58,333.00	$      -4,04,999.00

PBP = Year in which latest +ve CB + [ CB in that Year / CF in Next Year ]

= 7 + [ 153334 / 558333 ]

= 7 + 0.27

= 7.27 Years

Payback period is 7.27 Years