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A corporation is considering purchasing an asset. If they purchase the asset they expect the following additional net cash flows: Year 1 - $9,000 Year
A corporation is considering purchasing an asset. If they purchase the asset they expect the following additional net cash flows: Year 1 - $9,000 Year 2 - $7,000 Year 3- $5,000 Year 4 - $4,000 Year 5 - $2,000 The asset will cost $35,000 (initial outlay). Assume the corporation requires a 9% annual return on investments. Calculate the Profitability Index (for the calculation assume the cash flow is received at the end of the year). You must include the calculation in order to receive credit. Should the business purchase the asset (use Profitability Index rule to make the decision)?
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