Question

BAK Corp. is considering purchasing one of two new diagnostic machines. Either machine would make it...

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 $76,600 $179,000
Estimated life 8 years 8 years
Salvage value 0 0
Estimated annual cash inflows $19,900 $40,400
Estimated annual cash outflows $4,890 $9,940



Click here to view the factor table.

Calculate the net present value and profitability index of each machine. Assume a 9% discount rate. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round answer for present value to 0 decimal places, e.g. 125 and profitability index to 2 decimal places, e.g. 10.50. For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

Homework Answers

Answer #1

Net present value = Present value of net cash inflow - Initial investment

Machine A = [($19,900-4,890) * 5.53482 (PVAF@9%, 8years)] - $76,600

Machine A = $83,078 (15,010 * 5.53482) - $76,600 = $6,478

Machine B = [($40,400-9,940) * 5.53482 (PVAF@9%, 8years)] - $179,000

Machine B = $168,591 (30,460 * 5.53482) - $179,000 = -$10,409

Profitability index = Present value of cash inflow / Initial investment

Machine A = $83,078 / $76,600 = 1.08

Machine B = $168,591 / $179,000 = 0.94

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
BAK Corp. is considering purchasing one of two new diagnostic machines. Either machine would make it...
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...
BAK Corp. is considering purchasing one of two new diagnostic machines. Either machine would make it...
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 $77,700 $181,000 Estimated life 8 years 8 years Salvage value 0 0 Estimated annual cash inflows $20,500 $40,400 Estimated annual cash outflows $5,070 $10,000 Click here to view the factor table. Calculate the net present value...
BAK Corp. is considering purchasing one of two new diagnostic machines. Either machine would make it...
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 $75,900 $181,000 Estimated life 8 years 8 years Salvage value 0 0 Estimated annual cash inflows $19,900 $39,800 Estimated annual cash outflows $5,020 $10,050 Click here to view the factor table. Calculate the net present value...
BAK Corp. is considering purchasing one of two new diagnostic machines. Either machine would make it...
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 $75,700 $189,000 Estimated life 8 years 8 years Salvage value 0 0 Estimated annual cash inflows $19,800 $39,800 Estimated annual cash outflows $4,990 $10,100 Calculate the net present value and profitability index of each machine. Assume...
BAK Corp. is considering purchasing one of two new diagnostic machines. Either machine would make it...
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 PV table (n) Periods4%5%6%7%8%9%10%11%12%15%?01.000001.000001.000001.000001.000001.000001.000001.000001.000001.00000?11.040001.050001.060001.070001.080001.090001.100001.110001.120001.15000?21.081601.102501.123601.144901.166401.188101.210001.232101.254401.32250?31.124861.157631.191021.225041.259711.295031.331001.367631.404931.52088?41.169861.215511.262481.310801.360491.411581.464101.518071.573521.74901?51.216651.276281.338231.402551.469331.538621.610511.685061.762342.01136?61.265321.340101.418521.500731.586871.677101.771561.870411.973822.31306?71.315931.407101.503631.605781.713821.828041.948722.076162.210682.66002?81.368571.477461.593851.718191.850931.992562.143592.304542.475963.05902?91.423311.551331.689481.838461.999002.171892.357952.558032.773083.51788101.480241.628891.790851.967152.158922.367362.593742.839423.105854.04556111.539451.710341.898302.104852.331642.580432.853123.151763.478554.65239121.601031.795862.012202.252192.518172.812673.138433.498453.895985.35025131.665071.885652.132932.409852.719623.065813.452273.883284.363496.15279141.731681.979932.260902.578532.937193.341733.797504.310444.887117.07571151.800942.078932.396562.759033.172173.642484.177254.784595.473578.13706161.872982.182872.540352.952163.425943.970314.594975.310896.130399.35762171.947902.292022.692773.158823.700024.327635.054475.895096.8660410.76126182.025822.406622.854343.379933.996024.717125.559926.543557.6899712.37545192.106852.526953.025603.616534.315705.141666.115917.263348.6127614.23177202.191122.653303.207143.869684.660965.604416.727508.062319.6462916.36654 Calculate the net present value and profitability index...
BAK Corp. is considering purchasing one of two new diagnostic machines. Either machine would make it...
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 $ 74,600 $ 182,000 Estimated life 8 years 8 years Salvage value 0 0 Estimated annual cash inflows $ 20,000 $ 40,200 Estimated annual cash outflows $ 5,170 $ 10,190 Click here to view PV table....
BAK Corp. is considering purchasing one of two new diagnostic machines. Either machine would make it...
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 $77,500 $186,000 Estimated life 8 years 8 years Salvage value 0 0 Estimated annual cash inflows $19,500 $39,600 Estimated annual cash outflows $5,040 $9,800 Click here to view the factor table. Calculate the net present value...
BAK Corp. is considering purchasing one of two new diagnostic machines. Either machine would make it...
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 $74,500 $183,000 Estimated life 8 years 8 years Salvage value 0 0 Estimated annual cash inflows $20,300 $40,200 Estimated annual cash outflows $5,100 $9,810 Click here to view PV table. Calculate the net present value and...
BAK Corp. is considering purchasing one of two new diagnostic machines. Either machine would make it...
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 $76,900 $186,000 Estimated life 8 years 8 years Salvage value 0 0 Estimated annual cash inflows $19,600 $39,800 Estimated annual cash outflows $5,150 $10,080 Click here to view PV table. Calculate the net present value and...
BAK Corp. is considering purchasing one of two new diagnostic machines. Either machine would make it...
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 $78,000 $184,000 Estimated life 8 years 8 years Salvage value 0 0 Estimated annual cash inflows $19,800 $40,300 Estimated annual cash outflows $4,820 $10,160 Click here to view PV table. Calculate the net present value and...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT