Question

Exercise 16-4 Ayayai 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 B $179,000 8 years Machine A Original cost $74,000 Estimated life 8 years Salvage value Estimated annual cash inflows $19,500 Estimated annual cash outflows $4,800 $39,500 $9,800 Click here to view PV 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 e.g. -45 or parentheses e.g. (45). Round answers for present value to O 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.

Answer 1

macine B Machine Net cashingions (1.SDO-4500) (3350-9500) 39.F00 14.300 Presentvalus anauity tacio l. Syears >5.5348 Machine 4 Net przsent value - etentvala annity facto Netcaalinibes). -Initial Inestment 4, Foox 5.5346)-F4,DDD 81,36374.0o00 7 7363 Prientvalu of al arhin tloos mfbal meitmunt Brofita bilty mdet S1,36 a 1.099 74,000 machine B Ca1700x5.5348)-9,000 Netpretentralue- 164,383-79,000 14616 2. Panfitabilty mdu- 0.918 164,383 149,000 machine machine A Particulars Net preent valu Profi ta blty ns 7136a 1099 0-918 Attept machine A.