Delta Construction is considering the development of a secure domestic storage facility. The facility will contain 130 medium sized storage sheds. This project will require Delta Construction to purchase the required land for $3,800,000. All buildings and equipment related to the project is expected to cost $5,900,000 and will be depreciated over a 30 year useful life to a residual value of $3,200,000 using straight-line depreciation. The firms marginal tax rate is 40 percent.

Each storage shed is expected to be rented to domestic users for $15,000 per annum. However, Delta Construction anticipates they will only be able to rent a total of 80 storage sheds during the first 5 years of the projects life. After that, all 130 storage sheds are believed to be rented for the remaining 25 years. Annual operating expenses are estimated to be $640,000 per year.

At the end of the projects 30 year life, Delta Construction believes they will sell both the land and whole facility for $7,000,000 in total (i.e. original value of the land plus the residual value to the building and equipment). If the firms cost of capital is 7 percent on investments of this perceived risk level, determine the profitability index of this project.