Calculating Profitability Index Bill plans to open a self-serve grooming center in a storefront. The grooming equipment will cost $325,000, to be paid immediately. Bill expects after tax cash inflows of $67,000 annually for 7 years, after which he plans to scrap the equipment
Calculating Profitability Index Bill plans to open a self-serve grooming center in a storefront. The grooming equipment will cost $325,000, to be paid immediately. Bill expects after tax cash inflows of $67,000 annually for 7 years, after which he plans to scrap the equipment
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 10PB: Bouvier Restaurant is considering an investment in a grill that costs $140,000, and will produce...
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- Calculating Profitability Index Bill plans to open a self-serve grooming center in a storefront. The grooming equipment will cost $325,000, to be paid immediately. Bill expects after tax cash inflows of $67,000 annually for 7 years, after which he plans to scrap the equipment and retire to the beaches of Nevis. The first
cash inflow occurs at the end of the first year. Assume the required return is 13 percent. What is the project’s PI? Should it be accepted?
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Step 1
profitability index is ratio of present value of cash flow divided by initial investment.
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