Question: A company is considering a new inventory system that will cost $120,000. The system is expected to generate positive cash flows over the next four

A company is considering a new inventory system that will cost $120,000. The system is expected to generate positive cash flows over the next four years in the amounts of $35,000 in year 1, $55,000 in year 2, $65,000 in year 3, and $70,000 in year 4. The firm's required rate of return is 9%.

What is the profitability index (PI) of this project?

1.63

1.52

1.48

1.54.

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Q:

An electric furnace consisting of two heater sections, top and bottom, is used to heat treat a coating that is applied to both surfaces of a thin metal plate inserted midway between the heaters. The...

Q:

A company is considering a new inventory system that will cost $120,000. The system is expected to generate positive cash flows over the next four years in the amounts of $35,000 in year one, $55,000...

Q:

DYI Construction Co. is considering a new inventory system that will cost $750,000. The system is expected to generate positive cash flows over the next four years in the amounts of $350,000 in year...

Q:

15. Crestview Office Solutions, Inc. (COSI)just paid a dividend yesterday of $2.25 per share. The company's stock is currently selling for $60 per share, and the required rate of return on COSI stock...

Q:

.doc Microsoft Word Model 15 Add-Ins Mailings Review View References - 10 - A he m, * A Font E .A RE za 3 : P aragraph 20 1 AaBbccdc AaBBCcDc AaBbc AaBbcc AaB Normal No Spac... Heading 1 Heading 2...

Q:

Easy Appliances Inc. is considering a new inventory system that will cost $100,000. The system is expected to generate positive cash flows over the hext four years in the amounts of $30,000 in year...

Q:

Canvas XC 0 D Question 27 3 pts DYI Construction Co. is considering a new inventory system that will cost $750,000. The system is expected to generate positive cash flows over the next four years in...

Q:

2. DYI Construction Co. is considering a new inventory system that will cost $750,000. The system is expected to generate positive cash flows over the next four years in the amounts of $350,000 in...

Q:

Alarm Systems Corporation's preferred stock pays a dividend of $3.60 and sells for $28.00. Alarm Systems Corporation has a marginal tax rate of 35%. What is the cost of preferred financing? 12.857%...

Q:

DYI Construction Co. is considering a new inventory system that will cost $750,000. The system is expected to generate positive cash flows over the next four years in the amounts of $350,000 in year...

Q:

DYI Construction Co. is considering a new inventory system that will cost $750,000. The system is expected to generate positive cash flows over the next four years in the amounts of $350,000 in year...

Q:

Describe the kind of food that would have lactic acid bacteria. Mention their useful applications.

Q:

What are Jane Austen's novel "Persuasion" themes with analysis?

Q:

A covered person may hold a loan with an IESBA restricted entity as long as the loan is obtained under normal lending procedures, terms and requirements and is not otherwise prohibited by your member...

Q:

5. According to the company's policy, it is only acceptable to avoid credit approval on small purchases below $200. Ensure that no amounts of $200 or greater were purchased without the proper...