Beltway Co. is considering purchasing equipment that has an initial investment of $41,000. The company's required rate of return is 12%. Annual cost savings are projected to be $20,000 for year 1, $16,000 for year 2, and $12,000 for year 3. What is the investment's profitability index?

Beltway Co. is considering purchasing equipment that has an initial investment of $41,000. The company's required rate of return is 12%. Annual cost savings are projected to be $20,000 for year 1, $16,000 for year 2, and $12,000 for year 3. What is the investment's profitability index?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 5EB: A grocery store is considering the purchase of a new refrigeration unit with an Initial Investment...

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

. Beltway Co. is considering purchasing equipment that has an initial investment of $41,000. The
company's required rate of return is 12%. Annual cost savings are projected to be $20,000 for
year 1, $16,000 for year 2, and $12,000 for year 3. What is the investment's profitability index?
Present Value
PV of an Annuity
of 1 at 12%
Year
of 1 at 12%
1
.893
.893
.797
1.690
3
712
2.402
0.96
1.96
1.92
O 1.90

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