HBPE is considering a new project as part of its development in France. The project team must present a business plan to the investment committee in order to analyse the profitability of this development. The investment committee will make its decision based on the project PI.

The project data are as follows

- Project life: 5 years

- Constant annual turnover over 5 years: € 350,000

- Direct costs (as % of turnover): 45%.

- Fixed costs: €70,000

- Initial investment: €65282

- Depreciation allowance: €10,000 (part of the investment is not depreciable)

-Resale in year 5 of the software patent: €6000

- WCR: 10% of turnover; the WCR is incurred at the beginning of each year and will be recovered at the end of the 5th year.

- Tax rate: 33.1/3%.

- WACC = 12%.

 

Calculate the profitability index (PI) of the project.

Enter the figure to 4 decimal places. Use the ". "and not the ",".

Answer rating: 100% (QA)

To calculate the profitability index PI of the project well follow these steps Step 1 Calculate the present value of cash flowsStep 2 Calculate the ne... View the full answer