Answered step by step
Verified Expert Solution
Question
1 Approved Answer
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 initlal 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-yoar rule when calculating the CCA Tax Shield, 1.E use 0.5 instead of 1.5) a. 0.81 b. 0.84 c. 0.92 d. 0.98 e. 1.03
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started