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Laura wants to open a hotel. She estimates the hotel will cost $3 million to build and generate no other cash flow over the first
Laura wants to open a hotel. She estimates the hotel will cost $3 million to build and generate no other cash flow over the first year while the hotel is built. Subsequently, Laura believes the hotel will generate $300,000 in year two, and that cash flow will grow at 5% in each subsequent year in perpetuity. What is the profitability index for this investment if Laura's required annual return is 15%?
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