Exercise 24-4 Your answer is partially correct. Try again BAK Corp, is consideri

Question

Exercise 24-4 Your answer is partially correct. Try again 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 $76,100 8 years 0 19,900 5,140 Machine B $184,000 8 years Original cost Estimated life Salvage value Estimated annual cash inflows Estimated annual cash outflows $40,300 10,130 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 paces, e.g. 10.50. For calculation purposes, use 5 decimal places as displayed in the factor table provided.,) Machine A Machine B Net present value 5594 17015 Profitability index

Explanation / Answer

For Machine B NPV use negative sign   For machineA PI answer is 1.07 Statement showing Cash flows Project A Project B Particulars Time PVf 9% Amount PV Cash Outflows                            -                        1.00         (76,100.00)             (76,100.00)       (184,000.00)       (184,000.00) PV of Cash outflows = PVCO             (76,100.00)       (184,000.00) Net Cash inflows                       1.00                  0.9174            14,760.00                13,541.28            30,170.00            27,678.90 Net Cash inflows                       2.00                  0.8417            14,760.00                12,423.20            30,170.00            25,393.49 Net Cash inflows                       3.00                  0.7722            14,760.00                11,397.43            30,170.00            23,296.78 Net Cash inflows                       4.00                  0.7084            14,760.00                10,456.36            30,170.00            21,373.19 Net Cash inflows                       5.00                  0.6499            14,760.00                  9,592.99            30,170.00            19,608.43 Net Cash inflows                       6.00                  0.5963            14,760.00                  8,800.91            30,170.00            17,989.39 Net Cash inflows                       7.00                  0.5470            14,760.00                  8,074.23            30,170.00            16,504.02 Net Cash inflows                       8.00                  0.5019            14,760.00                  7,407.55            30,170.00            15,141.31 PV of Cash Inflows =PVCI                81,693.93         166,985.49 NPV= PVCI - PVCO                        5,594               (17,015) PI = PVCI/PVCO                          1.07                      0.91

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