Question

Caspian Sea Drinks is considering buying the J-Mix 2000. It will allow them to make and sell more product. The machine cost $1.94 million and create incremental cash flows of $581,620.00 each year for the next five years. The cost of capital is 9.30%. What is the profitability index for the J-Mix 2000?

Answer 1

Ans 1.16

Year	Project Cash Flows (i)	DF@ 9.3%	DF@ 9.3% (ii)	PV of Project ( (i) * (ii) )
1	581620	1/((1+9.3%)^1)	0.915	5,32,131.75
2	581620	1/((1+9.3%)^2)	0.837	4,86,854.30
3	581620	1/((1+9.3%)^3)	0.766	4,45,429.37
4	581620	1/((1+9.3%)^4)	0.701	4,07,529.16
5	581620	1/((1+9.3%)^5)	0.641	3,72,853.76
		PV		22,44,798.32
	Total of PV of Cash Inflows			2244798.32
	Cash Outflows			1940000
	Profitability Index =			1.16
Present value of cash Inflow / Initial Investment (Cash Outflows)				(2244798.32 / 1940000)