Question 1 Open Show Work Question 1 Whispering Winds, Inc. is considering purch

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Question 1

Whispering Winds, Inc. is considering purchasing equipment costing $84000 with a 6-year useful life. The equipment will provide annual cost savings of $21000 and will be depreciated straight-line over its useful life with no salvage value. Whispering Winds 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
What is the approximate profitability index associated with this equipment?

0.73 1.09 1.06 1.25 Click if you would like to Show Work for this question:

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Explanation / Answer

Present value of annual cost savings=21000*4.355= 91455 Profitability index=91455/84000= 1.09 Option 2 is correct

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