Question

Caspian Sea Drinks is considering buying the J-Mix 2000. It will allow them to make and sell more product. The machine cost $1.80 million and create incremental cash flows of $533,019.00 each year for the next five years. The cost of capital is 10.41%. What is the profitability index for the J-Mix 2000?

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

Answer 1

Calculation of profitability index	10.41%
Year	Cash Flow-1		PV factor, 1/(1+r)^t	PV-Cash Flow-1
1	$ 533,019.00		0.9057	$    482,763.34
2	$ 533,019.00		0.8203	$    437,246.03
3	$ 533,019.00		0.7430	$    396,020.31
4	$ 533,019.00		0.6729	$    358,681.56
5	$ 533,019.00		0.6095	$    324,863.29
			Total	$ 1,999,574.53
	Sum of PV of inflows		$ 1,999,574.53
	Outflow			$ 1,800,000.00
	Profitability index		1999574.53/1800000
	Profitability index		1.111