Cash Payback Period for a Service Company Chinook Industries Inc. is evaluating

Question

Cash Payback Period for a Service Company Chinook Industries Inc. is evaluating two capital investment proposals for a retail outlet, each requiring an investment of $150,000 and each with an eight-year life and expected total net cash flows of $240,000. Location 1 is expected to provide equal annual net cash flows of $30,000, and Location 2 is expected to have the following unequal annual net cash flows: Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Determine the cash payback period for both location proposals Location 1 Location 2 $59,000 44,000 29,000 18,000 31,000 25,000 18,000 16,000 years years

Explanation / Answer

Location 1 5 years =150000/30000 Location 2: Year Cash flows Cumulative cash flows 0 -150000 -150000 1 59000 -91000 2 44000 -47000 3 29000 -18000 4 18000 0 Cash payback period for Location 2 is 4 years

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