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The Fitness Center is considering including a treadmill in this? year's capital budget. The cash outlay...

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Finance

The Fitness Center is considering including a treadmill in this?year's capital budget. The cash outlay for the treadmill is

$1,590.

The? firm's cost of capital is

6.6%.

?After-tax cash? flows, including? depreciation, are as shown inthe table below. Calculate the profitability index? (PI) for thisproject.

End of Year

Cash Flow

1

$530

2

530

3

530

4

530

5

530

The present value of the cash inflows is

?$nothing .

?(Round to the nearest? cent.)The profitability index is

nothing

Answer & Explanation Solved by verified expert
4.1 Ratings (779 Votes)

Ans  present value of the cash inflows is $ 2196.58

The profitability index is 1.38

Year Project Cash Flows (i) DF@ 6.6% DF@ 6.6% (ii) PV of Project A ( (i) * (ii) )
1 530 1/((1+6.6%)^1) 0.938                           497.19
2 530 1/((1+6.6%)^2) 0.880                           466.40
3 530 1/((1+6.6%)^3) 0.826                           437.53
4 530 1/((1+6.6%)^4) 0.774                           410.44
5 530 1/((1+6.6%)^5) 0.726                           385.03
PV                       2,196.58
Total of PV of Cash Inflows 2196.58
Cash Outflows 1590
Profitability Index = 1.38
Present value of cash Inflow / Initial Investment (Cash Outflows) (2196.58/1590)

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Transcribed Image Text

The Fitness Center is considering including a treadmill in this?year's capital budget. The cash outlay for the treadmill is$1,590.The? firm's cost of capital is6.6%.?After-tax cash? flows, including? depreciation, are as shown inthe table below. Calculate the profitability index? (PI) for thisproject.End of YearCash Flow1$5302530353045305530The present value of the cash inflows is?$nothing .?(Round to the nearest? cent.)The profitability index isnothing

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