Jack Is Considering Adding Toys to His General Store

question 33

Multiple Choice

Jack is considering adding toys to his general store.He estimates that the cost of inventory will be $4,200.The remodeling and shelving costs are estimated at $1,500.Toy sales are expected to produce net cash inflows of $1,200, $1,500, $1,600, and $1,750 over the next four years, respectively.Should Jack add toys to his store if he assigns a three-year payback period to this project?

• A)yes; because the payback period is 2.94 years.
• B)yes; because the payback period is 2.02 years.
• C)yes; because the payback period is 3.80 years.
• D)no; because the payback period is 2.02 years.
• E)no; because the payback period is 3.80 years.

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Definitions:

Isocost Line

A graph representing all combinations of a firm's inputs that result in the same total cost.

Least Costly

A term referring to an option that incurs the lowest expenses in comparison to alternatives.

Isocost Line

A graph representing all combinations of the inputs' quantities that equal a certain cost.

Capital

Financial assets or the financial value of assets, such as cash and goods, used to generate wealth through investment.