Question
In: Finance
Consider the following capital investment proposal: It requires an initial investment of $1,170 million. The project...
Consider the following capital investment proposal:
It requires an initial investment of $1,170 million. The project is
expected to generate the following net cash flows:
$417 million in year 1
$328 million in year 2
$475 million in year 3
$531 million in year 4.
If the company uses a discount rate of 11%, how much is the
profitability index?
Enter your answer in millions. Round to one decimal.
Please show work
Solutions
Expert Solution
Solution:
If the company uses a discount rate of 11%, the profitability index = $ 1.1 million
Please find the attached screenshot of the excel sheet containing the detailed calculation for the solution.
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modified accelerated cost recovery system (MACRS) seven-year class
asset. The new plant will be built on some of the company's land,
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The company will produce bulk units at a cost of $130 each and
will sell them for $420 each....
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