(SOLVED) The owner of Black Hills Cafe is considering the purchase


Question Description:

$15

The owner of Black Hills Cafe is considering the purchase of a new semi-automatic coffee-making. The machine will cost $75 000 and last 10 years. The machine is expected to have no salvage value at the end of its useful life. The owner estimates that the new machine will generate $12 000 in after-tax savings each year during its life (including the tax effect of depreciation). The depreciation charge is the same for accounting and tax purposes.
Required:
Calculate the profitability index for the proposed vending machine, assuming the after-tax required rate of return of:
(a) 6 percent.
(b) 8 percent.
(c) 10 percent.

Answer

$15