TLC 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 is not equipped to do. Estimates for each machine are as follows: Machine AMachine BOriginal cost $78,300$190,100 Estimated life 8 years8 Years Salvage value 00 Estimated annual cash inflows $24,700$ 39,900 Estimated annual cash outflows $5,150$9,000 1. Calculate the net present value and profitability index of each machine A & B. Assume a 10% discount rate.

Solution: NPV and profitability index are methods to evaluate long term capital investment…

Answered: TLC Corp. is considering purchasing one…

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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TLC 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 is not equipped to do. Estimates for each machine are as follows:

	Machine A	Machine B
Original cost	$78,300	$190,100
Estimated life	8 years	8 Years
Salvage value	0	0
Estimated annual cash inflows	$24,700	$ 39,900
Estimated annual cash outflows	$5,150	$9,000

1. Calculate the net present value and profitability index of each machine A & B. Assume a 10% discount rate.

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