The owner of Black Hills Cafe is considering the purchase of a new, semi-automatic coffee-making machine. The machine will cost $75 000 and last 10 years. The machine is expected to have no salvage value at the end of its useful life. The owner estimates that the new machine will generate $12 000 in after-tax savings each year during its life (including the tax effect of depreciation). The depreciation charge is the same for accounting and tax purposes.

Required:

Calculate the profitability index for the proposed vending machine, assuming the after-tax required rate of return of:

(a)10 per cent

(b)12 per cent

(c)14 per cent.