Primera Banco is evaluating two capital investment proposals for a drive-up ATM
ID: 2494775 • Letter: P
Question
Primera Banco is evaluating two capital investment proposals for a drive-up ATM kiosk, each requiring an investment of $174,000 and each with an eight-year life and expected total net cash flows of $232,000. Location 1 is expected to provide equal annual net cash flows of $29,000, and Location 2 is expected to have the following unequal annual net cash flows:
Determine the cash payback period for both location proposals.
Which year ????? (from above)
Year 1 $56,000 Year 2 42,000 Year 3 28,000 Year 4 23,000 Year 5 14,000 Year 6 11,000 Year 7 34,000 Year 8 24,000Explanation / Answer
Location 1
Year
Cashflow
Net Invested cash
0
$ (174,000.00)
1
$ 29,000.00
$ (145,000.00)
2
$ 29,000.00
$ (116,000.00)
3
$ 29,000.00
$ (87,000.00)
4
$ 29,000.00
$ (58,000.00)
5
$ 29,000.00
$ (29,000.00)
6
$ 29,000.00
$ -
Pay Back period
7
$ 29,000.00
$ 29,000.00
8
$ 29,000.00
$ 58,000.00
Location 2
Year
Cashflow
Net Invested cash
0
(174,000)
1
56,000
(118,000)
2
42,000
(76,000)
3
28,000
(48,000)
4
23,000
(25,000)
5
14,000
(11,000)
6
11,000
-
Pay Back period
7
29,000
29,000
8
29,000
58,000
Location 1
Year
Cashflow
Net Invested cash
0
$ (174,000.00)
1
$ 29,000.00
$ (145,000.00)
2
$ 29,000.00
$ (116,000.00)
3
$ 29,000.00
$ (87,000.00)
4
$ 29,000.00
$ (58,000.00)
5
$ 29,000.00
$ (29,000.00)
6
$ 29,000.00
$ -
Pay Back period
7
$ 29,000.00
$ 29,000.00
8
$ 29,000.00
$ 58,000.00
Location 2
Year
Cashflow
Net Invested cash
0
(174,000)
1
56,000
(118,000)
2
42,000
(76,000)
3
28,000
(48,000)
4
23,000
(25,000)
5
14,000
(11,000)
6
11,000
-
Pay Back period
7
29,000
29,000
8
29,000
58,000
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