net present value and profitability index
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text: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
Machine B
Original cost
$ 77,500
$ 186,000
Estimated life
8 years
8 years
Salvage value
$ 19,500
$ 39,600
Estimated annual cash inflows
$ 5,040
$ 9,800
Estimated annual cash outflows
Click here to view the factor table.
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.)
Machine A
Machine B
Net present value
Profitability index
Which machine should be purchased?
should be purchased.
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