Assume the following information for a capital budgeting proposal with a five-year time horizon:
Initial investment: Cost of equipment (zero salvage value) $ 355,000
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 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using the tables provided. Assuming a discount rate of 12%, this proposal’s profitability index is closest to:
Multiple Choice
1.32.
1.27.
1.41.
1.37.