Playmore Products is considering producing toy action figures and sandbox toys. The products require different specializedmachines, each costing $1 million. Each machine has afive-year life and zero residual value. The two products have different patterns of predicted net cashinflows:

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Calculate the toy action figureproject's payback period. If the toy action figure project had a residual value of $175,000, would the payback periodchange? Explain and recalculate if necessary. Does this investment pass Playmore's payback period screeningrule?

Calculate the toy action figureproject's payback period.

First enter theformula, then calculate the payback period. (Enter amounts indollars, not millions. Round your answer to two decimalplaces.)

Year

Toy action

Sandbox toy

figure project

project

1

. . . . . . . . . . . . .

$

312,500

$

518,000

2

. . . . . . . . . . . . .

312,500

380,000

3

. . . . . . . . . . . . .

312,500

340,000

4

. . . . . . . . . . . . .

312,500

240,000

5

. . . . . . . . . . . . .

312,500

50,000

Total

$

1,562,500

$

1,528,000

Playmore will consider making capital investments only if the payback period of the project is less than 3.5 years and the ARR exceeds8%.

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Payback period