Question

Culver Company is considering a long-term investment project called ZIP. ZIP will require an investment of $133,200. It will have a useful life of 4 years and no salvage value. Annual cash inflows would increase by $82,300, and annual cash outflows would increase by $45,300. Compute the cash payback period.

What is Cash payback period?

Answer 1

Solution:-

To Calculate Cash Payback Period-

Cash Payback Period
Year	Cash Inflow	Cash Outflow	Net Cash Flow
0	0	1,33,200	-1,33,200
1	82,300	45,300	37,000
2	82,300	45,300	37,000
3	82,300	45,300	37,000
4	82,300	45,300	37,000

Cash Payback Period =

Cash Payback Period =

Cash Payback Period = 3.60 Years

Payback period is the amount of time which it takes to recover the initial cost of investment. Payback period is lower the better. Cash Payback period does not consider the Non Cash expense and Income Like Depreciation etc.

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