Question

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 12​%. 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: ​$11 comma 600 comma 000 Years one through four cash​ inflow: ​$2 comma 900 comma 000 each year Year five cash​ outflow: ​$1 comma 160 comma 000 Years six through eight cash​ inflow: ​$518 comma 667 each year What is the payback period for the new toy at​ Tyler's Toys? 7.24 years  ​(Round to two decimal​ places.) Under the payback​ period, this project would be rejected . ​(Select from the​ drop-down menu.) What is the NPV for the new toy at​ Tyler's Toys? ​$ nothing  ​(Round to the nearest​ cent.)

Answer 1

Payback	4 years	Accept since it is lesser than 7 years
NPV	-1426599.39	Reject since NPV is negative
IRR	7.06%	Reject since IRR is less than Cost of capital

Workings

Year	CF	Cumulative CF
0	-11600000	-11600000
1	2900000	-8700000
2	2900000	-5800000
3	2900000	-2900000
4	2900000	0
5	1160000	1160000
6	518667	1678667
7	518667	2197334
8	518667	2716001