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What is the profitability index for this project

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Reference no: EM132931036

Question - A company is considering a five-year project that would require a $2,805,000 investment in equipment with a useful life of five years and no salvage value. The company's discount rate is 14%. The project would provide net operating income in each of five years as follows:

Sales $2,741,000

Variable expenses 1,125,000

Contribution margin 1,616,000

Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $642,000

Depreciation 561,000

Total fixed expenses 1,203,000

Net operating income $413,000

1. What is the profitability index for this project?

2. What is the project's net present value?

3. What is the project's payback period?

Reference no: EM132931036

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