Calculate the Profitability index of a capital project. The initial investment is $250,000 for the purchase of some new radiology equipment. The new equipment will save the organization $15,000 a year for the next 10 years. The project discount rate is 12%. (Use table 18-4 to determine the discount rate.)
• Determine the present value of the operating savings:
Present value of saving = savings per year X discounted rate
• Determine the net present value (NPV)