Question

Wayne Company is considering a long-term investment project called ZIP. ZIP will require an investment of $142,104. It will have a useful life of 4 years and no salvage value. Annual cash inflows would increase by $80,000, and annual cash outflows would increase by $41,800. Compute the cash payback period.

Answer 1

Answer:

3.72 years

Explanation:

The cash payback period of this investment is the initial investment of $142,104 divided by net increase in cash in cash flow per period.

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

Net increase in cash flow per period=$80,000-$41,800=$38,200

Cash payback period=$142,104/$38,200=3.72 years

It would take 3  years 9 months(0.72*12 months) for the project to pay back its initial investment of $142,104