Question

Play Lifa Products is considering producing toy action figures and sandbox toys. The products require different spacialized machines, each costing $1 million Each machine has a fhve-year Iife and zaro residual value. Tha two products hava difarent patterns of pradicted net cash inflows 囲(Click th icon to view the data.) Calculate the sandbox toy project's peyback period. If the sandbox toy project had a residual value of $150,000, would the payback period change? Explain and recalculate if necessary. Does this investment pass Play Life's payback period screening rule? Calculale the sandbex loy project's peyback per iod. First, enter the formula, then calculate the payback period. (Enter amounts in dollars not millions. Round your answer to two decimal places. Abbreviation used: Amt.Amount) Full years( Initial investment Expected annual net cash inflowPayback 1000000 years If the sandbox toy project had a residuail value of $150,000, would the payback period change? Explain and recalculate i necessary. the Investment had a $150,00 residual value,the payback period affected The cash infow from any residual value would occu If tha investment had a $150,000 residual value, the payback period affectad The cash inflow from any residuall value would occur the assefs usafu l operating Ife and taken into account when c yback pariod calculating the pa Round your answer to two decimal places.) The payback period il the sandbox toy project had a residual value ol 3150,000 is Does this investment pass Play Life's payback perid screening rule? 3.5 years, so lt The payback perlod Is Play Life's inidal screening.

Answer 1

Calculation of Sandbox toy project's payback period.
Initial Investment = $1,000,000
Total cash inflows in Year 1 and = $510,000 + $360,000 = $870,000
Balance of investment i.e. $1,000,000 - $870,000 = $130,000 will be recovered in Year 3.
Payback period = 2 years + ($130,000 / $330,000)
= 2 + 0.39 = 2.39 years

If the sandbox toy project's has residual value of $150,000 then there will be no change in payback period because it will be received in Year 5 and as the payback period is 2.39 years, residual value doest not impact the same.

Hence the payback period will remain as 2.39 years.
The payback period is less than the 3.5 years so it will pass the Play Life Initial Screening.