Problem 12-2: Profitability Index (PI) and Payback Period
A firm is considering a major expansion that will cost SAR 15,000,000.
Annual cash flows from the project are expected to be SAR 3,500,000 for 7 years.
The firm uses a discount rate of 8%. It accepts the project if the projects payback is less than 6 years.
Calculate the Profitablility Index (PI) and the Payback Period of the project and determine if the project is acceptable based on PI and the Payback Period decision criteria.