Problem:
A company is planning an expansion. The initial investment is $480,000 and anticipates cash inflows as listed below. The cost of capital is 12.2%.
Requirement:
Question: What is the profitability index and should the firm go ahead with the project?
|
Years
|
Cash Inflows
|
|
1
|
$90,000
|
|
2
|
105,000
|
|
3
|
105,000
|
|
4
|
195,000
|
|
5
|
195,000
|
|
6
|
195,000
|
Note: Provide support for your rationale.