Wylie Contracting Inc. (WCI) is a contracting company that lays oil pipeline infrastructure. WCI is considering purchasing a piece of excavating equipment worth $9,000,000. The machine would generate a net $450,000 yearly pre-tax cash flows. The machine would be depreciated over the course of 20 years, at which time it is predicted to have a disposal value of $3,000,000.
Management plans to depreciate full value of the asset (not deducting the anticipated disposal value in the calculation), and will take a full year of depreciation the first year. WCI's tax rate is25%, and the discount rate is 12%.
What is the Excess Present Value Index of the proposed machinery (rounded to 4 decimal places)? What does this indicate about the proposed project?

Question

Wylie Contracting Inc. (WCI) is a contracting company that lays oil pipeline infrastructure. WCI is considering purchasing a piece of excavating equipment worth $9,000,000. The machine would generate a net $450,000 yearly pre-tax cash flows. The machine would be depreciated over the course of 20 years, at which time it is predicted to have a disposal value of $3,000,000. 
Management plans to depreciate full value of the asset (not deducting the anticipated disposal value in the calculation), and will take a full year of depreciation the first year. WCI's tax rate is25%, and the discount rate is 12%.
What is the Excess Present Value Index of the proposed machinery (rounded to 4 decimal places)? What does this indicate about the proposed project?

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The Answer of Wylie Contracting Inc. (WCI) is a contracting company that lays oil pipeline infrastructure. WCI is considering purchasing a piece of excavating equipment worth $9,000,000. The machine would generate a net $450,000 yearly pre-tax cash flows. The machine would be depreciated over the course of 20 years, at which time it is predicted to have a disposal value of $3,000,000. 
Management plans to depreciate full value of the asset (not deducting the anticipated disposal value in the calculation), and will take a full year of depreciation the first year. WCI's tax rate is25%, and the discount rate is 12%.
What is the Excess Present Value Index of the proposed machinery (rounded to 4 decimal places)? What does this indicate about the proposed project?