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 \$74,500 \$183,000 8 years 8 years 0 0 \$20,300 \$40,200 \$5,100 \$9,810

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 enter a dollar amount rounded to 0 decimal places enter a dollar amount rounded to 0 decimal places enter the Profitability index rounded to 2 decimal places enter the Profitability index rounded to 2 decimal places

Which machine should be purchased?

 select a machine that should be purchased                                                          Machine AMachine B should be purchased.

 Particulars Machine A Machine B Estimated Annual Cash Inflows \$20,300 \$40,200 Estimated Annual Cash outflows (\$5,100) (\$9,810) Net Annual Cash outflows \$15,200 \$30,390 x PVAF ( 9% x 8 Years) 5.53482 5.53482 Present value of Cash inflows \$84,129 \$168,203 Less: initial Investment (\$74,500) (\$183,000) Net Present Value \$9,629 \$14,797 Profitability Index = Present value of annual cash inflows / initial Investment 1.13 0.92 Machine A should be Purchased Since NPV is positive

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