BAK Corp. is considering purchasing one of two new diagnostic machines. Either m
ID: 2744565 • 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.
Click here to view the factor table.
(For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
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.)
Which machine should be purchased?
Explanation / Answer
Statement showing Cash flows Machine A Machine B Particulars Time PVf@9% Amount PV Amount PV Cash Outflows - 1.00 (77,820.00) (77,820.00) (186,400.00) (186,400.00) PV of Cash outflows = PVCO (77,820.00) (186,400.00) Cash inflows 1.00 0.9174 14,740.00 13,523 30,110.00 27,624 Cash inflows 2.00 0.8417 14,740.00 12,406 30,110.00 25,343 Cash inflows 3.00 0.7722 14,740.00 11,382 30,110.00 23,250 Cash inflows 4.00 0.7084 14,740.00 10,442 30,110.00 21,331 Cash inflows 5.00 0.6499 14,740.00 9,580 30,110.00 19,569 Cash inflows 6.00 0.5963 14,740.00 8,789 30,110.00 17,954 Cash inflows 7.00 0.5470 14,740.00 8,063 30,110.00 16,471 Cash inflows 8.00 0.5019 14,740.00 7,398 30,110.00 15,111 PV of Cash Inflows =PVCI 81,583 166,653 NPV= PVCI - PVCO 3,763 (19,747) PI= PVCI / PVCO 1.05 0.89 Machine A should be purchased.
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