Asked by Emaree Reeves on Jul 06, 2024
Verified
Proposals L and K each cost $600,000, have six-year lives, and have expected total cash flows of $720,000. Proposal L is expected to provide equal annual net cash flows of $170,000, while the net cash flows for Proposal K are as follows: Year 1 $250,000 Year 2 200,000 Year 3 100,000 Year 4 50,000 Year 5 100,000 Year 6 20,000$720,000\begin{array}{l}\text { Year 1 } & \$ 250,000 \\\text { Year 2 } & 200,000 \\\text { Year 3 } & 100,000 \\\text { Year 4 } & 50,000 \\\text { Year 5 } & 100,000 \\\text { Year 6 } & 20,000\\&\$ 720,000\end{array} Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 $250,000200,000100,00050,000100,00020,000$720,000 Determine the cash payback period for each proposal. Round answers to two decimal places.
Cash Payback Period
The duration it takes for the earnings from an investment to cover the initial amount invested.
Annual Net Cash Flows
The total amount of money, including inflows minus outflows, that a business generates over one year.
Expected Total Cash Flows
The projection of all the cash that is anticipated to be received or paid out over a certain period of time in the future.
- Ascertain and recognize the importance of the cash payback period in decisions regarding investments.
Verified Answer
KC
Kaitlin CoyleJul 09, 2024
Final Answer :
Proposal L: $600,000/$170,000 = 3.53 yearsProposal K: $250,000 + $200,000 + $100,000 + $50,000 = $600,000 = 4 years
Learning Objectives
- Ascertain and recognize the importance of the cash payback period in decisions regarding investments.