Question

Cash Payback period for a Service Company Jane's Clothing Inc. is evaluating two capital investment proposals for a retail outlet, each requiring an investment of $150,000 and each with an eight-year life and expected total net cash flows of $240,000. Location 1 is expected to provide equal annual net cash flows of $30,000, and Location 2 is expected to have the following unequal annual net cash flows: Year 1 $59,000 Year 2 44,000 29,000 Year 3 Year 4 18,000 Year 5 31,000 Year 6 25,000 18,000 Year 7 Year 8 16,000 Determine the cash payback period for both location proposals. Location 1 years Location 2 years

Answer 1

01) Location 1 Payback Period = Initial Investment/ annual cash inflow =$150000/30000 =5 Years

Location 2 Year Cash Inflow Accumulated Cash Inflow - 150000 - 150000 59000 44000 29000 -91000 -47000 -18000 18000 31000 25000 18000 31000 56000 74000 16000 90000 Therefore for location 2 Payback period is 4 Year

Summery Location 1 5 years Location 2 4 years