The Lake Construction Company is considering an investment of R150,000 for earth moving machine. is expected...

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The Lake Construction Company is considering an investment of R150,000 for earth moving machine. is expected to generate annual cash inflow of R80.000 for 6 years. Annual maintenance cost of the machine amount to R12.500. The scrap value of the machine at the end of the useful is R10,500. The opportunity cost of capital is 12%. No depreciation was considered. The company uses the straight-line method. Company tax is 25%. Required: Determine the Profitability index (PI) for the project. The Lake Construction Company is considering an investment of R150,000 for earth moving machine. is expected to generate annual cash inflow of R80.000 for 6 years. Annual maintenance cost of the machine amount to R12.500. The scrap value of the machine at the end of the useful is R10,500. The opportunity cost of capital is 12%. No depreciation was considered. The company uses the straight-line method. Company tax is 25%. Required: Determine the Profitability index (PI) for the project.

Answer rating: 100% (QA)

Calculation of cash flow for the years Year 1 Cash Inflow R80000 Maintenance Cost R12500 After Taxa... View the full answer