Question: The owner of Cape Cod Confectionary is considering the purchase

The owner of Cape Cod Confectionary is considering the purchase of a new semiautomatic candy machine. The machine will cost $30,000 and last 10 years. The machine is expected to have no salvage value at the end of its useful life. The owner projects that the new candy machine will generate $4,800 in after-tax savings each year during its life (including the depreciation tax shield).

Required:
Compute the profitability index on the proposed candy machine, assuming an after-tax hurdle rate of:
(a) 8 percent,
(b) 10 percent,
(c) 12 percent.


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  • CreatedApril 22, 2014
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