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Payback period lets the decision-maker quickly compare independent investments without considering interest. In this example, Acme Toys is considering investing in product 1 or product
Payback period lets the decision-maker quickly compare independent investments without considering interest. In this example, Acme Toys is considering investing in product 1 or product 2. Acme Toys requires a payback period of less than 6 years. Based on this rule, what should Acme Toys do? Product 1 Product 2 First Cost S 30,000 $ 60,000 Annual Revenue S 5,000 $ 8,000 Annual Cost S 1,000 $ 1,200 Scrap Value S 10,000 S 20,000 Service Life 5 10 O a. Acme Toys should invest in both, they have NPW>0 O b. Product 1 meets the payback criteria and should be chosen. . Product 1 should be chosen as it has the lowest payback period. O d. Both products fall beneath Acme Toys payback period rule so it should reject both according to this rule
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