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Tamim Products is planning to invest in an equipment to implement a cost-cutting proposal. The pre-tax cost reduction is expected to equal $8,500 for each
Tamim Products is planning to invest in an equipment to implement a cost-cutting proposal. The pre-tax cost reduction is expected to equal $8,500 for each of the five years of the project's life. The equipment has an initial cost of $28,000 and belongs to a 25% CCA class. The company is in 30% tax bracket, the project's discount rate is 12%, and its salvage value is zero. The equipment will be sold to another company at the end of year 5 for $4,500. What is the project's profitability index (PI)? (Use the half-year rule when calculating the CCA Tax Shield. I.E use 0.5 instead of 1.5) a. 0.81 b. 0.84 c. 0.92 d. 0.98 e. 1.03 Tamim Products is planning to invest in an equipment to implement a cost-cutting proposal. The pre-tax cost reduction is expected to equal $8,500 for each of the five years of the project's life. The equipment has an initial cost of $28,000 and belongs to a 25% CCA class. The company is in 30% tax bracket, the project's discount rate is 12%, and its salvage value is zero. The equipment will be sold to another company at the end of year 5 for $4,500. What is the project's profitability index (PI)? (Use the half-year rule when calculating the CCA Tax Shield. I.E use 0.5 instead of 1.5) a. 0.81 b. 0.84 c. 0.92 d. 0.98 e. 1.03
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