Cash Payback
Anderson Company must evaluate two capital expenditure proposals. Anderson's hurdle rate is 12%. Data for the two proposals follow.
- Required investmen : Proposal X = $480,000, Proposal Y = $480,000
- Annual after-tax cash inflows : Proposal X = $60,000, Proposal Y = -
- After-tax cash inflows at the end of years 3, 6, 9 and 12 : Proposal X = $480,000, Proposal Y = $162,000
- Life of project : : Proposal X = 12 years, Proposal Y = 12 years
What is the cash payback period for Proposal X? For Proposal Y?
Hint: For Proposal Y, in what year ( 3,6 , 9 or 12 ) will the full original investment be recovered?
Round Proposal x answer to one decimal place, if applicable.
Proposal X _____years
Proposal Y _____years