Chapter 12, Problem 5E

Cash payback period for a service company

Jane’s Clothing Inc. is evaluating two capital investment proposals for a retail outlet, each requiring an investment of $975,000 and each with a seven-year life and expected total net cash flows of $1,050,000. Location 1 is expected to provide equal annual net cash flows of $150,000, and Location 2 is expected to have the following unequal annual net cash flows:

Determine the cash payback period for both location proposals.