Sunland 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 here. Original cost Estimated life Salvage value Estimated annual cash inflows Estimated annual cash outflows Machine A $77,500 8 years 0 $19,500 $5,040 Machine B $186,000 8 years 0 $39,600 $9,800 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.)

Sunland 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 here. Original cost Estimated life Salvage value Estimated annual cash inflows Estimated annual cash outflows Machine A $77,500 8 years 0 $19,500 $5,040 Machine B $186,000 8 years 0 $39,600 $9,800 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.)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Management by Exception

A manager’s job is a very tough one. A manager needs to look at the various areas of work and as a manager he has to look after two or more important jobs or activities at the same time for the growth of the business. In order to do all these things in an effective manner, a manager must adopt or practice different management styles and tactics.

Question

Calculate the net present value and profitability index of each machine. Assume a 9% discount rate.

Sunland 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 here.
Original cost
Estimated life
Salvage value
Estimated annual cash inflows
Estimated annual cash outflows
Machine A
$77.500
8 years
0
$19,500
$5,040
Machine B
$186,000
8 years
0
$39,600
$9,800
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.)

Definition Definition Calculation used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. NPV is calculated as the difference between the present value of cash inflow and cash outflow. NPV is used for capital budgeting and investment planning as well as to compare similar investment alternatives.

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