Question

#3

Caspian Sea Drinks is considering buying the J-Mix 2000. It will allow them to make and sell more product. The machine cost $1.83 million and create incremental cash flows of $634,400.00 each year for the next five years. The cost of capital is 8.23%. What is the profitability index for the J-Mix 2000?

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Answer format: Number: Round to: 3 decimal places.

5

Derek decides to buy a new car. The dealership offers him a choice of paying $524.00 per month for 5 years (with the first payment due next month) or paying some $28,939.00 today. He can borrow money from his bank to buy the car. What interest rate makes him indifferent between the two options?

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Answer format: Percentage Round to: 3 decimal places (Example: 9.243%, % sign required. Will accept decimal format rounded to 5 decimal places (ex: 0.09243))

Answer 1

YEAR O 1 cash flows -$1,830,000 $634,400 $634,400 $634,400 $634,400 $634,400 NPV pv @ 8.23% 1.0000 0.9240 0.8537 0.7888 0.7288 0.6734 discounted cash flows -$1,830,000.00 $586,159.11 $541,586.53 $500,403.34 $462,351.79 $427,193.74 $687,694.51 5 L Profitability index = 1 + NPV - initial investment = 1.376 1+(687694.51/1830000)