A firm with a 10 percent required rate of return is considering investing in a new machine with an expected life of 6 years. The free cash flows resulting from this investment are given in Table 10-5. Determine the firm’s profitability index. According to the profitability index, should the firm accept the investment?

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TABLE 10-5 The Free Cash Flows Associated with an Investment in New Machinery Free Cash Flow -$50,000 15,000 8,000 10,000 12,000 14,000 16,000 Initial outlay Inflow year 1 Inflow year 2 Inflow year 3 Inflow year 4 Inflow year 5 Inflow year 6