Question 6 After-tax operating income is calculated as EBIT 1-T)+Depreciation. Q

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Question 6


After-tax operating income is calculated as EBIT 1-T)+Depreciation. QUESTION9 Safi's Gluten-free bakery is thinking of buying a hybrid electric vehicle that will allow them to deliver fresh hot baked goods for $42,000. The vehicle is expected to save the company money in gas and eam an extra profit totaling $9,500 per year for 8 years. After that, the car will need to be replaced. Their current cost of capital is 5%, what is the profitability index of this project? 0.55 None of these options 0.91 1.46 1.81 QUESTION 10 Chipotle's beta is 1.15, the current risk-free rate is 2% and the return to the market is 7%. What is Chipotle's cost of equity? 605% Click Save and Submit to save and submit. Click Save All Answers to save all answers Save All A ype here to search

Explanation / Answer

1.Present value of inflows=$9500*Present value of annuity factor(5%,8)

=$9500*6.463212759

=$61400.521

PI=Present value of inflows/Present value of outflows

=$61400.521/$42000

=1.46(Approx).

2.

Cost of equity=Risk free rate+Beta*(MArket rate-Risk free rate)

=2+1.15*(7-2)

=7.75%

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