Primera Banco is evaluating two capital investment proposals for a drive-up ATM

Question

Primera Banco is evaluating two capital investment proposals for a drive-up ATM kiosk, each requiring an investment of $256,000 and each with an eight-year life and expected total net cash flows of $512,000. Location 1 is expected to provide equal annual net cash flows of $64,000, and Location 2 is expected to have the following unequal annual net cash flows:

Determine the cash payback period for both location proposals.

Year 1 $100,000 Year 2 74,000 Year 3 49,000 Year 4 33,000 Year 5 90,000 Year 6 72,000 Year 7 51,000 Year 8 43,000

Explanation / Answer

Location 1 Pay back Period = $ 256000 / $ 64000

= 4 years

Location 2 Pay back Period = $ 100000 + $ 74000 +$ 49000 + $ 33000

= $ 256000 ie. 4 years

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