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Assume the following information for a capital budgeting proposal with a five-year time horizon: ...

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Accounting

Assume the following information for a capital budgeting proposal with a five-year time horizon:

Initial investment:
Cost of equipment (zero salvage value) $ 445,000
Annual revenues and costs:
Sales revenues $ 300,000
Variable expenses $ 130,000
Depreciation expense $ 50,000
Fixed out-of-pocket costs $ 40,000

Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided. Assuming a discount rate of 12%, this proposals profitability index is closest to:

Multiple Choice

  • 1.05.

  • 1.00.

  • 1.10.

  • 1.14.

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