The following information is available about an investment opportunity: Initial Capital Expenditure $3 Million Annual Sales (in units) 100,000 Selling price per unit $50 Cost per unit $20 Project life 3 years Salvage value $0 Depreciation Straight line, over life of the project Tax rate 35% WACC 20% Initially the project requires an increase in net working capital of $600,000, but it will be recovered after the project’s life. Calculate profitability index (PI):

The following information is available about an investment opportunity: Initial Capital Expenditure $3 Million Annual Sales (in units) 100,000 Selling price per unit $50 Cost per unit $20 Project life 3 years Salvage value $0 Depreciation Straight line, over life of the project Tax rate 35% WACC 20% Initially the project requires an increase in net working capital of $600,000, but it will be recovered after the project’s life. Calculate profitability index (PI):

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 21P

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