KSU Corp. is considering purchasing one of two new diagnostic machines. Either m

Question

KSU 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 $106,000 8 years Machine B $175,000 8 years Original cost Estimated life Salvage value Estimated annual cash inflows Estimated annual cash outflows 0 $30,000 $45,000 $10,000 $15,000 TABLE 3 Present Value of 1 Periods 5% 7% 8% 10% 11% 12% 91743 90909 .90090 89286 81162 79719 1 590 86957 75614 .88900 86384 83962 0.81630 .79383 .77218 .75132 73119.71178 65752 .85480 82270 .79209 0.76290 .73503 .70843 68301 65873 63552 57175 49718 79031 74622 .70496 0.66634 63017 .59627 .56447 .53464 50663 43233 75992 .71068 66506 0.62275 .58349 .54703 .51316 48166 45235 37594 .73069 67684 .6274 0.58201 54027 .50187 46651 43393 40388 .32690 39092 36061 28426 67556 61391 .55839 0.50835 4631942241.38554 .35218 32197 24719 21404 4% 96154 .95238 . 92456 . 6% 9% 94340 0.93458 92593 . 90703 89000 0.87344 85734 84168 82645 4 82193 78353 74726 0.71299 68058 64993 .62092 59345 .56743 70259 6446 59190 0.54393 50025 46043 42410 10 64058 21778 2748

Explanation / Answer

Calculation of net present value of machine A: Year Cashflow 9% factor Present value 0 -106000 1 -106000 1--8 20000 5.53482 110696.4 Net Present value @9% 4696.4 Net present value of machine A is $4696 Working: Cash inflow for 8 years=30000-10000=20000 0.613+0.543+0.48+0.425+0.376= 4.799 Calculation of net present value of machine B: Year Cashflow 9% factor Present value 0 -175000 1 -175000 1--8 30000 5.53482 166044.6 Net Present value -8955.4 Net present value of machine B is -$8955 Working: Cash inflow for 8 years=45000-15000=30000

Related Questions

Navigate

• Browse (All)
• Browse K
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.