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Cash Payback Hermson Company must evaluate two capital expenditure proposals
Cash Payback
Hermson Company must evaluate two capital expenditure proposals. Hermson's hurdle rate is 12%. Data for the two proposals follow.
| Proposal X | Proposal Y | |
|---|---|---|
| Required investment | $1,050,000 | $1,050,000 |
| Annual after-tax cash inflows | 107,250 | |
| After-tax cash inflows at the end of years 3, 6, 9, and 12 | 264,000 | |
| 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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