Question

ctice Assignment Gradebook ORION PRIN OF ACCT (ACCT 201-6 Downloadable Textbook niment CALCULATOR MESSAGE MY INSTRUCTOR FULL SCREEN PRINTER VERSION BACK NEXT Exercise 16-4 Swifty Corp. is consic equipped to do. Estim purchasing one of two new diagnostic machines. Either machine would make it possible for the company to bid on jobs that it currently isnt regarding each machine are provided below. Machine A $78,300 8 years Machine $185,000 8 years Original cost Estimated fe Salvage value Estimated annual cash inflows Estimated annual cash out $19,700 $5,040 $39,900 $9,850 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 eg.-45 or parentheses e.g. 45). Round answers for present value to decimal places, eg. 125 and profitability index to 2 decimal places.. 10.50. For calculation purposes, use 5 decimal places as played in the factor table provided) Machine A Machine B Net present value Profitability Index Which machine should be purchased? should be purchased MacBook Pro

Answer 1

Answer Machine A Present Value Cash Flow $14,660 $0 9% Discounting Factor 5.53482 0.50187 Present value of net annual cash flows ($19,700 - $5,040) Present value of salvage value $81,140 $0 Capital investment Net present value $81,140 $78,300 $2,840 Profitability Index = $81,140 / $78,300 = 1.04 Machine B Cash = Present Value Flow 9% Discounting Factor 5.53482 0.50187 $30,050 X $166,321 Present value of net annual cash flows ($39,900 - $9,850) Present value of salvage value $0 Capital investment Net present value $166,321 $185,000 ($18,679) Profitability Index = $168,259 / $181,000 = 0.90 Machine A should be purchased.