Question

PRINTER VERSION BACK NEXT WileyPLUS Problem 13-5 Tlor Corp. is considering purchasing one of two new diagnostic machines. The following estimated data has been determined by management: Initial cost Estimated Me Salvage value Estimated annual cash inflows Estimated annual cash outflows Machine 1 $40,000 5 years $1,000 $15,000 $3,900 Machine $50,000 5 years $1,400 $19.800 $6,950 Click here to view. PV table. Calculate the profitabity index assuming 5% discount rate (For calculation purposes, we decimal places 1.251.) es as ditayed in the factor table provided . 1.25124 and final answers to 3 decimal Profitability Index Machine 1 Machine 2 Based on your answer which project should the company choose?

Answer 1

	Answer
	Calculations:	Machine-1	Machine-2
	Original Cost	$                          40,000	$                     50,000
	Estimated year of Life	5	5
	Solvage Value	$                            1,000	$                       1,400
	Net Initial Cash Outflows	$                          39,000	$                     48,600
	Annual Cash Inflows	$                          15,000	$                     19,800
	Estimated Annual Cash Outflows	$                            3,900	$                       6,950
	Net Cash Inflows	$                          11,100	$                     12,850
	Present Value of annuity @5%	4.32947	4.32947
	Present Value of Inflows	$                          48,057	$                     55,634
	Net Present Value	$                            9,057	$                       7,034
	Profitability Indes (Present Value of Cash inflow/Initial outflows	1.20	1.11
Answer 1		Machine-1	Machine-2
	Net Present Value	$                            9,057	$                       7,034
	Profitability Indes	1.20	1.11
Answer 2
	Machine 1 Should be purchased.