Lenardi Corporation is evaluating the purchase of a new machine that would have an initial cost of $110,000. This new machine would have a profitability index of 2.50. The company's discount rate is 15%. What is the present value of the net cash inflows of the new machine project?

Question

Quizplus · Accepted Answer

The profitability index (PI) is calculated as the present value of future cash flows divided by the initial investment. Given a PI of 2.50 and an initial cost of $110,000, the present value of net cash inflows is calculated as $110,000 * 2.50 = $275,000.

Lenardi Corporation Is Evaluating the Purchase of a New Machine