BAK Corp. is considering purchasing one of two new diagnostic machines. Either m
ID: 2474472 • Letter: B
Question
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 $78,190 $181,700 Estimated life 8 years 8 years Salvage value 0 0 Estimated annual cash inflows $19,840 $40,480 Estimated annual cash outflows $5,030 $9,880
a. 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.)
b. Which machine should be purchased?
Explanation / Answer
Ans a Machine A Machine B Initial Investment 78,190.00 1,81,700.00 Cash Inflow 19,840.00 40,480.00 Less Cash outflow 5,030.00 9,080.00 Net Cash annual inflow 14,810.00 31,400.00 No of Years 8.00 8.00 PVAF @ 9% 5.53 5.53 Present value of cash inflows 81,970.67 1,73,793.32 NPV 3,780.67 -7,906.68 Profitability Index=Present value of cash inflow/Initial Investment 1.05 0.96 Ans b Machine A should be purchased
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.