Given the following information and assuming a CCA rate of 20%, what is the proﬁtability index of this project? Initial investment = $400,000; life = ﬁve years; before-tax cost savings = $150,000 per
Year; salvage value = $30,000 in year 5; tax rate = 34%; discount rate = 14%.

Question

Quizplus · Accepted Answer

The profitability index (PI) is calculated as the present value of future cash flows divided by the initial investment. After calculating the net cash flows considering tax savings from depreciation, tax on salvage value, and discounting them at 14%, the PI is found to be 1.07.

Given the Following Information and Assuming a CCA Rate of 20