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

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 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.

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