Question

Bonita 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 PV 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.)*

Machine A |
Machine B |
||||

Net present value | |||||

Profitability index |

Which machine should be purchased?

a. Machine B b. Machine A should be purchased. |

Answer #1

Computation of Present Values:

- Machine A:
Year Cash flows PV factor at 9% Discounted Cashflows 0 -77,500 1.0000 -77,500.00 1-8 14,460 ^{#}5.5348 +80,033.20 NPV 2,533.20 #Cash outflow - Cash inflow = 19500-5040

- Machine B:
Year Cash flows Discount factor @ 9% Discounted cashflows 0 -186,000 1.0000 -186,000.00 1-8 29,800 5.5348

164,937.04 NPV -21,062.96

Profitability Index: PV of cash inflows/Intial Outlay

- Machine A:80,033.20/77,500 = 1.03
- Machine B: 164,937.04/186,000 = 0.89

Since NPV of Machine A as well as the profitabilty index is higher than Machine B, it is recommended to purchase machine A.

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 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 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 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 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 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 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 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 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 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...

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