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Kenny Ltd. is considering a project that would require a $2,985,000 investment in equipment with a useful life of five years. At the end of
Kenny Ltd. is considering a project that would require a $2,985,000 investment in equipment with a useful life of five years. At the end of five years, the project would terminate and the equipment would be sold for its salvage value of $400,000. The companys discount rate is 10%. The project would provide net operating income each year as follows: Sales $ 2,737,000 Variable expenses 1,001,000 Contribution margin 1,736,000 Fixed expenses: Advertising, salaries and other fixed out-of-pocket costs $ 610,000 Depreciation 517,000 Total fixed expenses 1,127,000 Net operating income $ 609,000 Click here to view Exhibit 10-1 and Exhibit 10-2, to determine the appropriate discount factor(s) using tables. Required: What is the project profitability index for this project? (Round discount factor(s) to 3 decimal places and final answer to 2 decimal places.)
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