Berra, Inc. is currently considering a seven-year project that has an initial outlay or cost of $120,000. The future cash inflows from its project for years 1 through 7 are the same at $30,000. Berra has a discount rate of 11%. Because of capital rationing (shortage of funds for financing), Berra wants to compute the profitability index (PI) for each project. What is the PI for Berra's current project?

Cornerstones of Cost Management (Cornerstones Series)
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Author:Don R. Hansen, Maryanne M. Mowen
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Chapter19: Capital Investment
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Berra, Inc. is currently considering a seven-year project that
has an initial outlay or cost of $120,000. The future cash
inflows from its project for years 1 through 7 are the same
at $30,000. Berra has a discount rate of 11%. Because of
capital rationing (shortage of funds for financing), Berra
wants to compute the profitability index (PI) for each project.
What is the PI for Berra's current project?
Transcribed Image Text:Berra, Inc. is currently considering a seven-year project that has an initial outlay or cost of $120,000. The future cash inflows from its project for years 1 through 7 are the same at $30,000. Berra has a discount rate of 11%. Because of capital rationing (shortage of funds for financing), Berra wants to compute the profitability index (PI) for each project. What is the PI for Berra's current project?
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