A company plans to invest in a new machinery. Calculate the payback period and profitability index given the following cash flows and a discount rate of 6%.

Cash Flows:

• Initial Investment: $200,000
• Year 1: $50,000
• Year 2: $70,000
• Year 3: $90,000
• Year 4: $100,000
• Year 5: $120,000

Requirements:

1. Compute the cumulative cash flows for each year.
2. Determine the payback period.
3. Calculate the present value of each cash flow.
4. Sum the present values and divide by the initial investment to get the profitability index.