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 $438,000 and each with an eight-year life and expected total net cash flows of $584,000. Location 1 is expected to provide equal annual net cash flows of $73,000, 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 $158,000 Year 2 114,000 Year 3 74,000 Year 4 57,000 Year 5 35,000 Year 6 70,000 Year 7 48,000 Year 8 28,000

Explanation / Answer

cash pay back period for location1 = 6 years                        (73000*6)

cash payback period for location 2= 5 years               (158000+114000++74000+57000+35000)

this is the time required to cover the cash outflows or ivestment of $438,000

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