Question

Crane company is considering a long-term investment project called zip. zip will require an investment of $125,190. it will have a useful life of 4 years and no salvage value. annual cash inflows would increase by $79,000, and annual cash outflows would increase by $40,000. compute the cash payback period.
cash payback period _____ years.

Answer 1

cash payback period ____3.21 _ years.

The $125,190 initial investment divided by the net increase in cash flow per period yields the cash payback period for this investment.

Cash Payback Period = Initial Investment /Net increase Cash Flow per Period

Net cash flow improvement for the period = $79,000 - $40,000 = $39,000

Cash payback period is 3.21 years ($125,190/$39,000)

The project's $125,190 initial investment would be repaid in 3 years, 2.5 months (0.21 x 12 months).

What is cash back period?

The Payback Period is the length of time it will take for an investment to generate sufficient cash flow to cover the entire investment. You would forecast the cash flow for the investment, project, or business when estimating the payback period.

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