Koby’s Korn Fritters is looking at a new fritter system with an installed cost of $896,000....

Koby’s Korn Fritters is looking at a new fritter system with an installed cost of $896,000. This cost will be depreciated straight-line to zero over the project’s five year life. At the end of five years, the system can be sold for $101,000. The new system is expected to save the firm $189,000 per year in pre-tax operating costs, but not affect revenues. The system requires an initial investment in net working capital of $47,000 and the firm’s required return on the project is 8%. If the firm’s tax rate is 21%, what is the profitability index for the project?

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jeff jeffy answered 1 year ago

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