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 $632,011.00 each year for the next five years. The cost of capital is 11.32%. What is the profitability index for the J-Mix 2000?

Answer 1

Ans 1.19

Year	Project Cash Flows (i)	DF@ 11.32%	DF@ 11.32% (ii)	PV of Project ( (i) * (ii) )
1	632011	1/((1+11.32%)^1)	0.898311	5,67,742.54
2	632011	1/((1+11.32%)^2)	0.806963	5,10,009.47
3	632011	1/((1+11.32%)^3)	0.724904	4,58,147.21
4	632011	1/((1+11.32%)^4)	0.651189	4,11,558.76
5	632011	1/((1+11.32%)^5)	0.584971	3,69,707.83
		PV	23,17,165.81
	Total of PV of Cash Inflows			2317165.81
	Cash Outflows			1940000
	Profitability Index =			1.19
Present value of cash Inflow / Initial Investment (Cash Outflows)	(2317165.81/1940000)