Cash Payback Period Wyoming Woodworks is evaluating two capital investment propo

Question

Cash Payback Period Wyoming Woodworks is evaluating two capital investment proposals for a retail outlet store, each requiring an investment of $1,009,000 and each with a five-year life and expected total net cash flows of $1,261,250. Location 1 is expected to provide equal annual net cash flows of $252,250, and Location 2 is expected to have the following unequal annual net cash flows Year 1 $404,000 2373,000 232,000 179,800 72,450 Year 3 Year 4 Year 5 Determine the cash payback period for both location proposals Location1 Location 2 years years

Explanation / Answer

Cash payback period = Initial investment/Annual cash flow

Location 1 = 1009000/252250 = 4 years :

Location 2 :

Location 2 : Cash payback period is 3 years

Year Cash flow Cumulative cash flow 1 404000 404000 2 373000 777000 3 232000 1009000 4 179800 1188800 5 72450 1261250

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