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. "Don't forget to view the PV table if needed."
Machine A: Original Cost: $74,000 Machine B: $179,000
Estimated life: 8 years Estimated life: 8 years
Salavage value: 0 Salvage value: 0
Estimated annual cash inflows: $19,500 Estimated annual cash inflows: $39,500
Estimated annual cash outflows: $4,800 Estimated annual cash outflows: $9,800
Calculate the net present value and profitability index of each machine. Assume a 9% discount rate.
Machine A: Net present value ___________? Machine B: Net Present value ______________?
Profitability index ___________? Profitability index ____________________?
Which machine should be purchased? _____________
|Net annual cash flows||14700||=19500-4800|
|Present value of Net annual cash flows||81362||=14700*5.53482|
|Less: Investment cost||74000|
|Net present value||7362|
|Net annual cash flows||29700||=39500-9800|
|Present value of Net annual cash flows||164384||=29700*5.53482|
|Less: Investment cost||179000|
|Net present value||-14616|
|Machine A should be purchased|
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