Brady Corp. is considering the purchase of a piece of equipment that costs $23,000. Projected net...
Question:
Brady Corp. is considering the purchase of a piece of equipment that costs $23,000. Projected net annual cash flows over the project's life are:
| Year | Net Annual Cash Flow |
| 1 | $3,000 |
| 2 | 8,000 |
| 3 | 15,000 |
| 4 | 9,000 |
The cash payback period is __________.
Cash Payback:
The cash payback technique determines the number of years an investment takes to recover its investment outlay through the annual net cash flows. The method suggests that the lower the payback, the better the investment opportunity and vice-versa.
Answer and Explanation: 1
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Brady Corp's cash payback is 2.80 years.
We use the following format to determine the cash payback:
| Year | Net cash flows | Cumulative cash flows |
| 0 | -$23... |
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Cash Payback Technique: Definition & Formula
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Chapter 14 / Lesson 2
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The cash payback technique takes into account the amount of investment and the expected annual cash flow from that investment. Learn about the definition and formula of cash payback period, and explore examples involving the cash payback technique.
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