The owner of Atlantic City Confectionary is considering the purchase of a new semiautomatic candy machine. The machine will cost $27,000 and last 8 years. The machine is expected to have no salvage value at the end of its useful life. The owner projects that the new candy machine will generate $4,100 in after-tax savings each year during its life (including the depreciation tax shield). Use Appendix A for your reference. (Use appropriate factor (s) from the tables provided.) Required:Compute the profitability index on the proposed candy machine, assuming an after-tax hurdle rate of: (a) 6 percent, (b) 8 percent, and (c) 10 percent. (Round your final answers to 2 decimal places.) a 6 percent Profitability index ? b 8 percent Profitability index ? c 10 percent Profitability index __?

Question

Sullivan Nicholson

Business

5 January, 10:13

The owner of Atlantic City Confectionary is considering the purchase of a new semiautomatic candy machine. The machine will cost $27,000 and last 8 years. The machine is expected to have no salvage value at the end of its useful life. The owner projects that the new candy machine will generate $4,100 in after-tax savings each year during its life (including the depreciation tax shield). Use Appendix A for your reference. (Use appropriate factor (s) from the tables provided.) Required:Compute the profitability index on the proposed candy machine, assuming an after-tax hurdle rate of: (a) 6 percent, (b) 8 percent, and (c) 10 percent. (Round your final answers to 2 decimal places.) a 6 percent Profitability index ? b 8 percent Profitability index ? c 10 percent Profitability index __?

+3

Answers (1)

Know the Answer?

Rocco Ruiz · Answer 1

6% 8% 10%

Annual cash flows 4100 4100 4100

Annuity PVF at 8 yrs 6.20979 5.74664 5.33493

Present value of inflow 25460.14 23561.22 21873.21

Divide: Investment 27000 27000 27000

Profitability Index 0.94 0.87 0.81