Primera Banco is evaluating two capital investment proposals for a drive-up ATM
ID: 2471374 • Letter: P
Question
Primera Banco is evaluating two capital investment proposals for a drive-up ATM kiosk, each requiring an investment of $236,000 and each with an eight-year life and expected total net cash flows of $472,000. Location 1 is expected to provide equal annual net cash flows of $59,000, and Location 2 is expected to have the following unequal annual net cash flows:
Determine the cash payback period for both location proposals.
Year 1 $92,000 Year 2 68,000 Year 3 45,000 Year 4 31,000 Year 5 83,000 Year 6 66,000 Year 7 47,000 Year 8 40,000Explanation / Answer
Year
CashFlow
Cum Cash Flow
- 0
(236,000)
(236,000)
1
92,000
(144,000)
2
68,000
(76,000)
3
45,000
(31,000)
4
31,000
-
5
83,000
83,000
6
66,000
149,000
7
47,000
196,000
8
40,000
236,000
Payback period = 3 years
Year
CashFlow
Cum Cash Flow
- 0
(236,000)
(236,000)
1
59,000
(177,000)
2
59,000
(118,000)
3
59,000
(59,000)
4
59,000
-
5
59,000
59,000
6
59,000
118,000
7
59,000
177,000
8
59,000
236,000
Payback period = 3 years
Year
CashFlow
Cum Cash Flow
- 0
(236,000)
(236,000)
1
92,000
(144,000)
2
68,000
(76,000)
3
45,000
(31,000)
4
31,000
-
5
83,000
83,000
6
66,000
149,000
7
47,000
196,000
8
40,000
236,000
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