complete present values Exercise 26-4 Your answer is partially correct. Try agai

Question

complete present values

Exercise 26-4 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 $77,000 8 years Machine B $188,000 8 years Original cost Estimated life Salvage value Estimated annual cash inflows Estimated annual cash outflows $19,900 $4,800 $40,200 $9,860 Calculate the net present value and profitability index of each machine. Assume a 9% discount rate. (If the net present value is egative, 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 Net present value Profitability index 1.09 89 Which machine should be purchased? Machine A VE should be purchased

Explanation / Answer

Machine A: Present value of annual cash flows 83576 =(19900-4800)*5.53482 Less: Investment 77000 Nert present value 6576 Profitability index = 83756/77000= 1.09 Machine B: Present value of annual cash flows 167926 =(40200-9860)*5.53482 Less: Investment 188000 Nert present value -20074 Profitability index = 167926/188000= 0.89

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