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 \$77,700 \$181,000 8 years 8 years 0 0 \$20,500 \$40,400 \$5,070 \$10,000

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.)

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

Calculation of NPV of Machine A

 Period Initial Cost Cash Inflows Cash Outflows Net Cash Flows P.V.A.F @ 9% P.V @ 9% 0 -77,700 -77,700 1.00000 -77,700 1-8 20500 -5070 15,430 5.53482 85,402 NPV 7,702

Calculation of NPV of Machine B

 Period Initial Cost Cash Inflows Cash Outflows Net Cash Flows P.V.A.F @ 9% P.V @ 9% 0 -181,000 -181,000 1.00000 -181,000 1-8 40400 -10000 30,400 5.53482 168,259 NPV -12,741

Calculation of Profitability Index:

 d) Profitability Index= (NPV+ initial Investment) Initial investment Machine A Machine B NPV 7,702 -12,741 Initial Investment 77,700 181,000 Total 85,402 168,259 PI 1.10 0.93