Using the present value of an annuity table factor, the present value of the annual net cash inflows is ($25,000 2.531) or $63,275. The initial investment is ($63,275 - $3,275) or $60,000. The profitability index is ($63,275 $60,000) or 1.05.

Evergreen Co. is contemplating the purchase of a new machine that has expected annual net cash inflows of $25,000 over its 3 year life. The net present value of the investment is $3,275; assuming a 9% discount rate. The present value factors are as follows: from the present value of 1 table = .772 and from the present value of an annuity table = 2.531. Compute the profitability index.

A. 1.19

B. 0.77

C. 1.15

D. 1.05