The profitability index at 10% per year for a project that has an initial investment of $400,000, an AOC of $80,000 per year, revenue of $170,000 per year, and a salvage value of $60,000 after its 5?year life is closest to: (choose one)
(a) 0.95
(b) 1.06
(c) 1.38
(d) 0.86
PW of NCF = (170,000 – 80,000)(P/A,10%,5) + 60,000(P/F,10%,5)
= (170,000 – 80,000)(3.7908) + 60,000(0.6209)
= $378,426
PI = 378,426/400,000
= 0.95
Answer is (a) 0.95
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