Question

Caspian Sea Drinks is considering buying the J-Mix 2000. It will allow them to make and sell more product. The machine cost $1.60 million and create incremental cash flows of $590,566.00 each year for the next five years. The cost of capital is 8.11%. What is the profitability index for the J-Mix 2000?

Answer 1

Project
Discount rate	8.110%
Year	0	1	2	3	4	5
Cash flow stream	-1600000	590566	590566	590566	590566	590566
Discounting factor	1.000	1.081	1.169	1.264	1.366	1.477
Discounted cash flows project	-1600000.000	546263.990	505285.349	467380.768	432319.645	399888.674
NPV = Sum of discounted cash flows
NPV Project =	751138.43
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor