The Bradley Shoe Company plans on buying new equipment for $60,000 that will have an est....
The Bradley Shoe Company plans on buying new equipment for $60,000 that will have an est. useful life of 3 years. The expected cash inflow is $24,000 annually. The cost of capital is 12%. Given that the present value of $1 after 3 periods at 12% is 0.71178, and the present value of an annuity for 3 periods at 12% is 2.40183, what is the profitability index?
Homework Answers
Profitability index = Present value of the future cash flows / Initial Investment
Profitability index = ($24,000 × 2.40183) / $60,000
Profitability index = 0.961
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