The Fitness Center is considering including a treadmill in this? year's capital budget. The cash outlay...

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Finance

The Fitness Center is considering including a treadmill in this?year's capital budget. The cash outlay for the treadmill is
$1,590.
The? firm's cost of capital is
6.6%.
?After-tax cash? flows, including? depreciation, are as shown inthe table below. Calculate the profitability index? (PI) for thisproject.
End of Year
Cash Flow
1
$530
2
530
3
530
4
530
5
530
The present value of the cash inflows is
?$nothing .
?(Round to the nearest? cent.)The profitability index is
nothing

Answer & Explanation Solved by verified expert

4.1 Ratings (779 Votes)

Ans present value of the cash inflows is $ 2196.58

The profitability index is 1.38

Year	Project Cash Flows (i)	DF@ 6.6%	DF@ 6.6% (ii)	PV of Project A ( (i) * (ii) )

1	530	1/((1+6.6%)^1)	0.938	497.19
2	530	1/((1+6.6%)^2)	0.880	466.40
3	530	1/((1+6.6%)^3)	0.826	437.53
4	530	1/((1+6.6%)^4)	0.774	410.44
5	530	1/((1+6.6%)^5)	0.726	385.03
		PV		2,196.58


	Total of PV of Cash Inflows			2196.58
	Cash Outflows			1590

	Profitability Index =			1.38
Present value of cash Inflow / Initial Investment (Cash Outflows)				(2196.58/1590)

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Transcribed Image Text

The Fitness Center is considering including a treadmill in this?year's capital budget. The cash outlay for the treadmill is$1,590.The? firm's cost of capital is6.6%.?After-tax cash? flows, including? depreciation, are as shown inthe table below. Calculate the profitability index? (PI) for thisproject.End of YearCash Flow1$5302530353045305530The present value of the cash inflows is?$nothing .?(Round to the nearest? cent.)The profitability index isnothing