Answer:
Location 1 = 5 years
Location 2 = 4 years
Explanation:
The period in which initial investment is recovered by a business is known as payapack period.
Location 1
Net cash flow = $320,000
Cash Flow per year = $320,000 / 8 = $40,000
Payback period = Initial Investment / Yearly cash flow = $200,000 / $40,000 per year = 5 years
Location 2
As per given Data
Cash Flows
Year1 $60,000 Year2 $50,000
Year3 $50,000 Year4 $40,000
Year5 $30,000 Year6 $30,000
Year7 $30,000 Year8 $30,000
Payback period Balance
Year0 ($200,000) ($200,000)
Year1 $60,000 ($140,000)
Year2 $50,000 ($90,000)
Year3 $50,000 ($40,000)
Year4 $40,000 ($0)
It took 4 year to recoveer the initial investment, so the payaback period is 4 years.
