Lane Industries is considering the replacement of one of its machines. Several alternative are under consideration. The relevant cash flows associated with each are shown in the following table. The firm's cost of capital is 15%.

Cash inflows Initial Inv. Year 1 Year 2 Year 3 Year 4 Year 5 Year6 Year 7 Year 8

Press A $106,250 $22,500 $22,500 $22,500 $22,500 $22,500 $22,500 $22,500 $22,500

Press B $75,000 $15,000 $17,500 $20,000 $22,500 $25,000 $31,250

Press C $162,500 $62,500 $37,500 $25,000 $25,000 $25,000 $37,500 $50,000 $62,500

Calculate the profitability index (PI) for each machine and rank the machines from best to worst using PI.

A. Rank Press PI Acceptability

1 C 1.12 Accept

2 B 1.04 Accept

3 A 0.95 Reject

B. Rank Press PI Acceptability

1 C 1.12 Accept

2 B 1.04 Accept

3 A 0.95 Accept

C. Rank Press PI Acceptability

1 C 1.92 Accept

2 B 1.44 Accept

3 A 1.05 Accept

D. Rank Press PI Acceptability

1 C 1.12 Accept

2 B 1.05 Accept

3 A 1.04 Accept