Question

Question 3 /2 View Policies Current Attempt in Progress BAK 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 A Machine B Original cost $76,900 $186,000 Estimated life 8 years 8 years Salvage value $39,800 Estimated annual cash inflows $19,600 Estimated annual cash outflows $5.150 $10,080 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 eg (45). Round answer for present value to O decimal places, e.g. 125 and profitability index to 2 decimal places, e.s. 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 Attempts: 0 of 7 used Save for Later Submit Answer

Answer 1

	Machine A	Machine B
Original Costs(a)	$76,900	$1,86,000
Net Cash Inflows	$14,450	$29,720
PV factor of annuity at 9% for 8 years	5.53482	5.53482
PV of Net Cash Inflows(b)	$79,978	$1,64,495
NPV(b-a)	$3,078	-$21,505
Profitability Index(b/a)	1.04	0.88
Machine A should be purchased due to its higher NPV