BAK Corp. is considering purchasing one of two new diagnostic
machines. Either machine would make it possible for the company to
bid on jobs that it currently isn’t equipped to do. Estimates
regarding each machine are provided below.
Machine A | Machine B | ||||
---|---|---|---|---|---|
Original cost | $77,000 | $188,000 | |||
Estimated life | 8 years | 8 years | |||
Salvage value | 0 | 0 | |||
Estimated annual cash inflows | $19,900 | $40,200 | |||
Estimated annual cash outflows | $4,800 | $9,860 |
Calculate the net present value and profitability index of each
machine. Assume a 9% discount rate.
Machine A | Machine B | ||||
---|---|---|---|---|---|
Net present value | |||||
Profitability index |
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