Refer to the Allegra Data Set. Calculate the CD-player project€™s payback period. If the CD project had a residual value of $100,000, would the payback period change? Explain and recalculate if necessary. Does this investment pass Allegra€™s payback period screening rule?
Allegra Data Set
Allegra is considering producing CD players and digital video recorders (DVRs). The products require different specialized machines, each costing $1 million. Each machine has a five-year life and zero residual value. The two products have different patterns of predicted net cash inflows:

Allegra will consider making capital investments only if the payback period of the project is less than 3.5 years and the ARR exceed 8%.

Annual Net Cash Inflows CD Players S 312,500 312,500 312,500 312,500 312,500 $1,562,500 DVRs S 500,000 350,000 300,000 250,000 40.000 $1,440,000 ear 4 Total