BAK Corp. is considering purchasing one of two new diagnostic machines. Either m
ID: 2475011 • 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. 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.)Explanation / Answer
Profitability Index for project A=Pv Cash inflows/PV Cash outflows=$113,291/$74,600=1.52
Profitability Index for project B=Pv Cash inflows/PV Cash outflows=$227,614/$182,000=1.25
Based on NPV,Project B is accepted
based on profitability Index, Project A is accepted
Net Present Value Project A Year Cash flow $ Pv@9% PV $ 0 -74,600 1.0000 -74,600 1 20,000 0.9174 18,349 2 20,000 0.8417 16,834 3 20,000 0.7722 15,444 4 20,000 0.7084 14,169 5 20,000 0.6499 12,999 6 20,000 0.5963 11,925 7 20,000 0.5470 10,941 8 20,000 0.5019 10,037 8 5,170 0.5019 2,595 NPV 38,691Related Questions
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