Kenny Ltd. is considering a project that would require a $2,985,000 investment in equipment with a useful life of five years. At the end of five years, the project would terminate and the equipment would be sold for its salvage value of $400,000. The company’s discount rate is 10%. The project would provide net operating income each year as follows:
Sales $ 2,737,000
Variable expenses 1,001,000
Contribution margin 1,736,000
Fixed expenses:
Advertising, salaries and other fixed out-of-pocket costs $ 610,000
Depreciation 517,000
Total fixed expenses 1,127,000
Net operating income $ 609,000
Click here to view Exhibit 10-1 and Exhibit 10-2, to determine the appropriate discount factor(s) using tables.
Required:
What is the project profitability index for this project? (Round discount factor(s) to 3 decimal places and final answer to 2 decimal places.)