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 $483,000 and each with an eight-year life and expected total net cash flows of $552,000. Location 1 is expected to provide equal annual net cash flows of $69,000, 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 $155,000 Year 2 116,000 Year 3 77,000 Year 4 63,000 Year 5 39,000 Year 6 33,000 Year 7 40,000 Year 8 29,000

Explanation / Answer

Determine the cash payback period for both location proposals.

Location 1 :

Payback period = Initial investment/annual cash flow

= 483000/69000

Payback period = 7 years

Location 2 :

so location 2 payback period is 6 years

Year Cash flow cumlative cash flow 1 155000 155000 2 116000 271000 3 77000 348000 4 63000 411000 5 39000 450000 6 33000 483000 7 40000 523000 8 29000 552000

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