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 $75,500 $180,000 Estimated life 8 years 8 years Salvage value –0– –0–

Estimated annual cash infl ows $20,000 $40,000 Estimated annual cash outfl ows $5,000 $10,000 Instructions Calculate the net present value and profitability index of each machine. Assume a 9% discount rate. Which machine should be purchased?

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