Asked by
Edward Kenway
on Nov 08, 2024
Verified
Bill plans to open a do-it-yourself dog bathing center in a storefront. The bathing equipment will cost $160,000. Bill expects the after-tax cash inflows to be $40,000 annually for seven years, after which he plans to scrap the equipment and retire to the beaches of Jamaica. Assume the required return is 15%. What is the project's PI? Should it be accepted?
A) 0.88; yes
B) 0.88; no
C) 1.00; indifferent
D) 1.04; yes
E) 1.04; no
Required Return
The expected return that investors seek from an investment, considering its risk level and the opportunity cost of forgoing other investments.
Profitability Index
A calculation that determines the relative profitability of an investment, expressed as the ratio of the present value of future cash flows over the initial investment cost.
- Master the principles and mathematical procedures of the Profitability Index (PI).
Verified Answer
DR
Learning Objectives
- Master the principles and mathematical procedures of the Profitability Index (PI).
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