Question

Products is considering producing toy action figures and sandbox toys. The products require different specialized​ machines, each costing ​$1.1 million. Each machine has a​ five-year life and zero residual value. The two products have different patterns of predicted net cash​ inflows: LOADING...​(Click the icon to view the​ data.) Calculate the sandbox toy​ project's payback period. If the sandbox toy project had a residual value of $ 200 comma 000​, would the payback period​ change? Explain and recalculate if necessary. Does this investment pass Toy Universe​'s payback period screening​ rule?

Answer 1

Answer:

Answer explained below

Explanation:

A. Calculation of Payback Period

1. For Toy Action Figure

Total Investment = $ 1,000,000

First Two Years' Net Cash Flow= $ 371500 + $ 371500

= $ 743,000

Balance Investment to be Recovered from Third Year Cash Flow= Total Investment - First-two Year Net Cash Flow

= $ 1,000,000 - $ 743,000

= $ 257,000

Third Year Net Cash Flow = $ 371,500

Payback period = 2 Years + (12MOnths* $ 257000) / $ 371,500

= 2 Years + 8.30 Months

= 2 Years 8.30 Months

2. For Sandbox Toy Project

Total Investment = $ 1,000,000

First Two Years' Net Cash Flow= $ 540000 + $ 390000

= $ 930,000

Balance Investment to be Recovered from Third Year Cash Flow= Total Investment - First-two Year Net Cash Flow

= $ 1,000,000 - $ 930,000

= $ 70,000

Third Year Net Cash Flow = $ 310,500

Payback period = 2 Years + (12 Months* $ 70000) / $ 310,500

= 2 Years + 2.71 Months

= 2 Years 2.71 Months

B. ARR of the Projects

1. For Toy Action Figure

Total Cash Flows (Given) = $1,857,000

Total Investment (Given) = $ 1,000,000

Net Income= Total Cashflows - Total Investment

= $ 1,857,000 - $ 1,000,000

, = $ 857,000

ARR Year basis = ($ 857,000 / $ 1,000,000)*100 / 5 Years

= 17.14%

2. For Sandbox Toy

Total Cash Flows (Given) = $1,535,000

Total Investment (Given) = $ 1,000,000

Net Income= Total Cashflows - Total Investment

= $ 1,535,000 - $ 1,000,000

= $ 535,000

ARR Year basis = ($ 535,000 / $ 1,000,000)*100 / 5 Years

 = 10.70%

So, Company Internal Policy for both the Project is Fulfill but as per the calculation shown above company should invest in Toy Action Figure Because It will within the payback period and earn maximum Return to the company,

And

If the Sandbox Toy has $ 200,000 Residual value then also the income will not exceed the Toy figure so answer will not change in this condition also.

Answer 2

The sandbox toy​ project's payback period is 2.77 years.

f the sandbox toy project had a residual value of $ 200 comma 000​, the payback period would not change.

What is the payback period?

Payback period is a capital budgeting method used by firms to determine if the cash flows from a project are enough to cover the cost of the project.

It calculates the number of years it would take to recover the amount invested in a project from its cumulative cash flows.

• Amount invested = ​$-1.1 million.
• Amount recovered in year 1 = -1.1 million + $ 520,000 = -580,000
• Amount recovered in year 2 = -580,000 +  340,000 = -240,000
• Amount recovered in year 3 = -240,000 / 310,000 = 0.77

Payback period = 2.77

Here are the cash flows for the sandbox project:

Year 1 540,000

Year 2 340,000

Year 3 310,000

Year 4 270,000

Year 5 40,000

To learn more about the payback period, please check: https://brainly.com/question/26068051