Question

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?

Answer 1

Year	Expected Annual cash inflows	Expected Annual cash outflows	Net Annual cash inflow	Cumulative net Cash inflow
0	(68,000.00)	-	-	(68,000.00)
1	38,000.00	12,000.00	26,000.00	(42,000.00)
2	33,000.00	18,000.00	15,000.00	(27,000.00)
3	40,000.00	22,000.00	18,000.00	(9,000.00)
4	32,000.00	20,000.00	12,000.00	3,000.00
Payback Period =				3.75 Years

Payback Period = Years before full recover+(Unrecovered cash inflow at start of the year/cash flow during the year )

= 3 Year + ( $9,000 / 12,000 )

= 3 Year + 0.75 Year

= 3.75 Years

" Cash payback period is 3.75 Years "