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Net Present Value Analysis Hermson Company must evaluate two capital expenditure proposals. Hermsons cutoff rate is 12%. Data for the two proposals follow. Proposal X
Net Present Value Analysis Hermson Company must evaluate two capital expenditure proposals. Hermsons cutoff rate is 12%. Data for the two proposals follow.
Proposal X | Proposal Y | |
---|---|---|
Required investment | $140,000 | $140,000 |
Annual after-tax cash inflows | 33,000 | |
After-tax cash inflows at the end of years 3, 6, 9, and 12 | 99,000 | |
Life of project | 12 years | 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
Answer
years
Proposal Y
Answer
years
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