What is the profitability index for this investment

Assignment Help Accounting Basics
Reference no: EM13126045

The Mejicano company is planning to purchase a piece of equipment that will reduce annual cash expenses over its 5-year useful life by equal amounts. The company will depreciate the equipment using a straight line method of depreciation based on estimated life of 5 years without any salvage value. The company is subject to a 40 percent tax. The marginal cost of capital for this acquisition is 11.50 percent. the financial analyst calculated that the internal rate of return based on the estimated after-tax calculated cash flows is 12.386 percent and a net present value of 10000. The president, however, wants to know the profitability index before he finally decides. What is the profitability index for this investment.

Reference no: EM13126045


Write a Review

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd