Question

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.

Answer 1

• Working

	Cash inflows	Cash outflows	Net Cash flows	Cumulative net cash flows
Year	[A]	[B]	[C = A - B]	[D = D+C]
1	$36,000	$12,000	$24,000	$24,000
2	$65,000	$17,000	$48,000	$72,000
3	$75,000	$30,000	$45,000	$117,000
4	$70,000	$40,000	$30,000	$147,000

Out of $ 108000, $ 72000 will be recovered in 2 Years

• Cash Payback period
  = 2 years + [($108000 – 72000) / $ 45000]
  = 2 years + 0.8
  = 2.8 years
• Correct Answer = 2.8 years [matches none of the options provided]