Cash Payback Period Primera Banco is evaluating two capital investment proposals

Question

Cash Payback Period Primera Banco is evaluating two capital investment proposals for a drive-up ATM kiosk, each requiring an investment of $300,000 and each with an eight-year life and expected total net cash flows of $480,000. Location 1 is expected to provide equal annual net cash flows of $60,000, and Location 2 is expected to have the following unequal annual net cash flows: Year 1 $117,000 Year 2 87,000 Year 3 57,000 Year 4 39,000 Year 5 63,000 Year 6 50,000 Year 7 36,000 Year 8 31,000 Determine the cash payback period for both location proposals. Location 1 Select12345678 years Location 2 Select12345678 years

Explanation / Answer

Year Location 1 Cummulative cash flows Location 2 Cummulative cash flows

1 60000 60000 117000 117000

2 60000 120000 87000 204000

3 60000 180000 57000 261000

4 60000 240000 39000 300000

5 60000 300000 63000 363000

6 60000 360000 50000 413000

7 60000 420000 36000 449000

8 60000 480000 31000 480000

Pay back period:

Location 1 is 5 years

Location 2 is 4 years.

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