Question

The Precise Printing Corporation is contemplating the acquisition of a state of the art printing press. The following information is relevant: The cost of the printing press is $180,000 The anticipated revenue from the printing press is $120,000 per year. The useful life of the Annual operating costs are expected to be: is 12 years. $40,000 10,000 4,600 6,400 12,000 16% Salaries Utilities Power usage Supplies Repairs/maintenance Discount rate The firm uses straight-line d The salvage value for the The company's cutoff points are as follows: is zero Payback Accounting rate of return 4 years 16% Ignore income taxes. Compute the Profitability Index of the printing press. O CI8o,0oo = 47 OOD: CASH IN PLow Ex (73,000) 244,2 63.7o .35 70

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Answer 1

Annual cashflows:
Revenue			120000
Lless: Expenses
Salaries			40000
Utilitties			10000
Power usage			4600
Supplies			6400
Repairs and maintenance			12000
Net cash flows Annual			47000
Multiply: Annuity PVF at 16% for 12yrs			5.19711
Present value of cashflows				244264.2
Divide: Investment				180000
Profitability index				1.36