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 $264,000 and each with an eight-year life and expected total net cash flows of $528,000. Location 1 is expected to provide equal annual net cash flows of $66,000, and Location 2 is expected to have the following unequal annual net cash flows: Year 1 $95,000 Year 2 69,000 Year 3 45,000 Year 4 34,000 Year 5 21,000 Year 6 127,000 Year 7 87,000 Year 8 50,000 Determine the cash payback period for both location proposals. Location 1 years Location 2 years

Explanation / Answer

Location 1

Cash payback period = $264,000 / $66,000 = 4 years

Location 2

Cash payback period = $264,000 - $95,000 - $69,000 - $45,000 - $34,000 - $21,000 = 0 ie. 5 Years

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