Calculate the profitability index of project y

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Reference no: EM13200206

Project Y is estimated to cost $9,000,000 to start and will generate $2,800,000 pre-tax income annually for 5 years with the startup cost being depreciated to zero straight line over  4 years. You plan to sell Project Y at the end of 5 years for $100,000. Tax regulations place your company's tax rate at 29%. Your company's cost of capital is estimated to be 11%

a. Calculate the net present value of the Project Y

 i. NPV = $413,924.13 (IRR = 12.86%)

b. Calculate the profitability index of Project Y

 i. PI = 1.05

Reference no: EM13200206

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