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A capital investment project has total installed cost of $25 million and a terminal value of...


A capital investment project has total installed cost of $25 million and a terminal value of $16 million at the end of its 10-year life. The project is expected to generate $5 million in net cash flows after tax each year. The firm’s marginal tax rate is 40 percent, and its cost of capital is 7 percent. Calculate the profitability index of this project.

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Answer #1

Solution.>

I have solved this question in Excel. The formula used are written along with the values. If you still have any doubt, kindly ask in the comment section.

The Profitability index is calculated by: 1+(Net Present Value/Initial Investment)

Note: Give it a thumbs up if it helps! Thanks in advance!

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