Tamim Products is planning to invest in an equipment to implement a cost-cutting proposal. The pre-tax cost reduction is expected to equal $8,500 for each of the five years of the project's life. The equipment has an initial cost of $28,000 and belongs to a 25% CCA class. The company is in 30% tax bracket, the project's discount rate is 12%, and its salvage value is zero. The equipment will be sold to another company at the end of year 5 for $4,500. What is the project's profitability index (PI)? (Use the half-year rule when calculating the CCA Tax Shield. I.E use 0.5 instead of 1.5) a. 0.81 b. 0.84 c. 0.92 d. 0.98 e 1.03
Tamim Products is planning to invest in an equipment to implement a cost-cutting proposal. The pre-tax cost reduction is expected to equal $8,500 for each of the five years of the project's life. The equipment has an initial cost of $28,000 and belongs to a 25% CCA class. The company is in 30% tax bracket, the project's discount rate is 12%, and its salvage value is zero. The equipment will be sold to another company at the end of year 5 for $4,500. What is the project's profitability index (PI)? (Use the half-year rule when calculating the CCA Tax Shield. I.E use 0.5 instead of 1.5) a. 0.81 b. 0.84 c. 0.92 d. 0.98 e 1.03
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 4P
Related questions
Question
![Tamim Products is planning to invest in an equipment to implement a cost-cutting proposal. The pre-tax cost reduction is
expected to equal $8,500 for each of the five years of the project's life. The equipment has an initial cost of $28,000 and
belongs to a 25% CCA class. The company is in 30% tax bracket, the project's discount rate is 12%, and its salvage value is
zero. The equipment will be sold to another company at the end of year 5 for $4,500. What is the project's profitability index
(PI)? (Use the half-year rule when calculating the CCA Tax Shield. I.E use 0.5 instead of 1.5)
a. 0.81
b. 0.84
C. 0.92
d. 0.98
e. 1.03](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F438d81ce-0423-43dc-872d-52336e048cc1%2F77450eb4-d617-4b0a-b519-d6771a15dce8%2Fgtx176_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Tamim Products is planning to invest in an equipment to implement a cost-cutting proposal. The pre-tax cost reduction is
expected to equal $8,500 for each of the five years of the project's life. The equipment has an initial cost of $28,000 and
belongs to a 25% CCA class. The company is in 30% tax bracket, the project's discount rate is 12%, and its salvage value is
zero. The equipment will be sold to another company at the end of year 5 for $4,500. What is the project's profitability index
(PI)? (Use the half-year rule when calculating the CCA Tax Shield. I.E use 0.5 instead of 1.5)
a. 0.81
b. 0.84
C. 0.92
d. 0.98
e. 1.03
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