Project Y is estimated to cost $9,000,000 to start and will generate $2,800,000 pre-tax income annually for 5 years with the startup cost being depreciated to zero straight line over 4 years. You plan to sell Project Y at the end of 5 years for $100,000. Tax regulations place your company's tax rate at 29%. Your company's cost of capital is estimated to be 11%
a. Calculate the net present value of the Project Y
i. NPV = $413,924.13 (IRR = 12.86%)
b. Calculate the profitability index of Project Y
i. PI = 1.05