Cleaners, Inc. is considering purchasing equipment costing $60,000 with a 6-year useful life. The equipment will provide cost savings of $14,600 and will be depreciated straight-line over its useful life with no salvage value. Cleaners requires a 10% rate of return.

Present Value of an Annuity of 1

Period

8%

9%

10%

11%

12%

15%

6

4.623

4.486

4.355

4.231

4.111

3.784

Reference: Ref 12-2

What is the approximate profitability index associated with this equipment?

Select one:

a. 1.23

b. 1.03

c. 1.06

d. .73