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Compute arr and profitability index

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Reference no: EM132650843

ABC is considering the purchase of equipment for $900,000. Useful life estimated at 6 years (no salvage value). Annual revenues are expected to increase by $400,000 with estimated expenses increasing by $190,000. (excludes Depreciation (S-L)).
ABC requires a rate of return of 9%. (cost of capital = 9%)

Question 1: Compute ARR? NPV? Profitability Index (similar projects in the company portfolio have an index of .75)? Payback (3 years)? Would you accept this project?

Reference no: EM132650843

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