Nashville Tours is considering adding a new bus route To do so, the company would be required to purchase a new bus, which would cost $600,000, have a 10 year life, and have no salvage value If the new bus is purchased, Nashville Tours ' managers expect that net cash inflows from bus ridership woul...

a PV of inflows 584011 91000 x 64177 PV of investment ...

Nashville Tours is considering adding a new bus route. To do so, the company would be required

Question:

Nashville Tours is considering adding a new bus route. To do so, the company would be required to purchase a new bus, which would cost $600,000, have a 10-year life, and have no . If the new bus is purchased, Nashville Tours' managers expect that net cash inflows from bus ridership would rise by $91,000 per year for the life of the new bus. Nashville Tours uses a 9 percent required rate of return for evaluating capital projects.
a. Compute the profitability index of the bus investment.
b. Should Nashville Tours buy the new bus?
c. What is the minimum acceptable value for the profitability index for an investment to be acceptable? Explain.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...