Jamaica Corp is adding a new assembly line at a cost of 85 m

Jamaica Corp. is adding a new assembly line at a cost of $8.5 million. The firm expects the project to generate cash flows of $2 million, $3 million, $4 million, and $5 million over the next four years. Its cost of capital is 16 percent. What is the payback period for this project? (Round your answer to one decimal place.)

2.7years

2.9 years

3.4 years

3.1 years

Solution

Hence Payback period=Last period with a negative cumulative cash flow+(Absolute value of cumulative cash flows at that period/Cash flow after that period).

=2+(3.5/4)

which is equal to

=2.9 years(Approx).