Question

Cash payback period for a Service Company

Prime Financial Inc. is evaluating two capital investment proposals for a drive-up ATM kiosk, each requiring an investment of $200,000 and each with an eight-year life and expected total net cash flows of $320,000. Location 1 is expected to provide equal annual net cash flows of $40,000, and Location 2 is expected to have the following unequal annual net cash flows:

Year 1 | $78,000 | Year 5 | $42,000 | |

Year 2 | 58,000 | Year 6 | 34,000 | |

Year 3 | 38,000 | Year 7 | 24,000 | |

Year 4 | 26,000 | Year 8 | 20,000 |

Determine the cash payback period for both location proposals.

Location 1 | years |

Location 2 | years |

Answer #1

Cash Payback Period
Primera Banco is evaluating two capital investment proposals for
a drive-up ATM kiosk, each requiring an investment of $280,000 and
each with an eight-year life and expected total net cash flows of
$560,000. Location 1 is expected to provide equal annual net cash
flows of $70,000, and Location 2 is expected to have the following
unequal annual net cash flows:
Year 1
$109,000
Year 2
81,000
Year 3
53,000
Year 4
37,000
Year 5
98,000
Year 6...

Chinook Industries Inc. is evaluating two capital investment
proposals for a retail outlet, each requiring an investment of
$180,000 and each with an eight-year life and expected total net
cash flows of $360,000. Location 1 is expected to provide equal
annual net cash flows of $45,000, and Location 2 is expected to
have the following unequal annual net cash flows: Year 1 $81,000
Year 2 61,000 Year 3 38,000 Year 4 58,000 Year 5 43,000 Year 6
32,000 Year 7...

Payback Period (Uneven cash flows)
When the annual cash flows are unequal, the payback period is
computed by adding the annual cash flows until such time as the
original investment is recovered. If a fraction of a year is
needed, it is assumed that cash flows occur evenly within each
year.
The steps for determining the payback period with uneven cash
flows is as follows:
Add the annual cash flows to one another until the investment
is recovered.
For each...

Cash Payback Method (Even cash flows)
Suppose that a particular investment required an up-front
capital outlay of $100,000. This investment is expected to yield
cash flows of $40,000 per year for 10 years. What is the payback
period for this investment? If required, round your answer to two
decimal places.
Cash Payback Period = $ / $ = years
Payback Period (Uneven cash flows)
When the annual cash flows are unequal, the payback period is
computed by adding the annual cash...

When the annual cash flows are unequal, the payback period is
computed by adding the annual cash flows until such time as the
original investment is recovered. If a fraction of a year is
needed, it is assumed that cash flows occur evenly within each
year.
The steps for determining the payback period with uneven cash
flows is as follows:
Add the annual cash flows to one another until the investment
is recovered.
For each full year's worth of cash...

The NPV and payback period
Suppose you are evaluating a project with the cash inflows shown
in the following table. Your boss has asked you to calculate the
project’s net present value (NPV). You don’t know the project’s
initial cost, but you do know the project’s regular, or
conventional, payback period is 2.50 years.
The project's annual cash flows are:
Year
Cash Flow
Year 1
$400,000
Year 2
600,000
Year 3
500,000
Year 4
475,000
If the project’s desired rate...

7. The NPV and payback period
Suppose you are evaluating a project with the cash inflows shown
in the following table. Your boss has asked you to calculate the
project’s net present value (NPV). You don’t know the project’s
initial cost, but you do know the project’s regular, or
conventional, payback period is 2.50 years.
The project's annual cash flows are:
Year
Cash Flow
Year 1
$350,000
Year 2
600,000
Year 3
600,000
Year 4
450,000
If the project’s desired...

Metlock Inc. is contemplating a capital investment of $68000.
The cash flows over the project’s four years are:Metlock Inc. is
contemplating a capital investment of $68000. The cash flows over
the project’s four years are:
Expected Annual
Expected Annual
Year
Cash Inflows
Cash Outflows
1
$38000
$12000
2
33000
18000
3
40000
22000
4
32000
20000
The cash payback period is?

Cash Payback
Method
Lily Products Company
is considering an investment in one of two new product lines. The
investment required for either product line is $540,000. The net
cash flows associated with each product are as follows:
Year
Liquid Soap
Body Lotion
1
$170,000
$ 90,000
2
150,000
90,000
3
120,000
90,000
4
100,000
90,000
5
70,000
90,000
6
40,000
90,000
7
40,000
90,000
8
30,000
90,000
Total
$720,000
$720,000
a.
Recommend a product offering to Lily Products Company, based...

Novak Inc. is contemplating a capital investment of $108000. The
cash flows over the project’s four years are:
Expected Annual. Expected Annual.
Year. Cash Inflows. Cash Outflows.
1. $36000 $12000
2. 65000 17000
3. 75000 30000
4. 70000 40000
The cash payback period is
3.09 years.
4.20 years.
3.69 years.
2.16 years.

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