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Albury Company is adding a new assembly line at a cost of $8.5 million. The company...

Albury Company is adding a new assembly line at a cost of $8.5 million. The company 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 (rounded to one decimal place)? Select one: A. 2.8 years B. 2.9 years C. 3.1 years D. 3.4 years

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Answer #1

Solution.>

The corect option is (B) ie. 2.9 years.

I have solved this question in Excel. The formula used are written along with the values. If you still have any doubt, kindly ask in the comment section.

Payback Period = Year of last negative balance + (Balance of that year / Cash flow of next year)

Cost of capital is actaully not required to calculate the payback period.

Note: Give it a thumbs up if it helps! Thanks in advance!

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