Nations Trust is evaluating two capital investment proposals for a drive-up ATM

Question

Nations Trust is evaluating two capital investment proposals for a drive-up ATM kiosk, each requiring an investment of $320000 and each with an eight-year life and expected total net cash flows of $512000. Location 1 is expected to provide equal annual net cash flows of $64000, and Location 2 is expected to have the following unequal annual net cash flows:

Year 1 $110000      Year 5   $48000

Year 2    80000        Year 6      48000

Year 3     70000        Year 7     48000

Year 4      60000       Year 8     48000

Determine the cash payback period for both location proposals.

Nations Trust is evaluating two capital investment proposals for a drive-up ATM kiosk, each requiring an investment of $320000 and each with an eight-year life and expected total net cash flows of $512000. Location 1 is expected to provide equal annual net cash flows of $64000, and Location 2 is expected to have the following unequal annual net cash flows: Determine the cash payback period for both location proposals.

Explanation / Answer

CASH PAY BACK PERIOD UNDER LOCATION - 1

320000/64000 = 5 YEARS

CASH PAY BACK PERIOD UNDER LOCATION - 2

(110000+80000+70000+60000) = 320000

THEREFORE CASH PAYBACK PERIOD = 4 YEARS

CASH PAY BACK PERIOD UNDER LOCATION - 1

320000/64000 = 5 YEARS

CASH PAY BACK PERIOD UNDER LOCATION - 2

(110000+80000+70000+60000) = 320000

THEREFORE CASH PAYBACK PERIOD = 4 YEARS

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