Acme bikes, Inc. is thinking of developing a bike. Development will take six years and the cost is $200,000 per year. Once in production, the bike is expected to make $300,000 per year for 10 years. Assume the cost of capital is 10%. Calculate the profitability index? Do the negative cash flows need to be discounted to calculate the initial cash outlay or is it $1.2M?

CF0 =0

Cf1= -200,000

Cf2=-200,000

Cf3=-200,000

Cf4=-200,000

Cf5=-200,000

Cf6=-200,000

Cf7= 300,000

Cf8= 300,000

Cf9= 300,000

Cf10= 300,000

Cf11= 300,000

Cf12= 300,000

Cf13= 300,000

Cf14= 300,000

Cf15= 300,000

Cf16= 300,000