Question
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
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 isnt equipped to do. Estimates regarding each machine are provided below. Machine A Machine B Original cost $74,500 $183,000 Estimated life 8 years 8 years Salvage value 0 0 Estimated annual cash inflows $20,300 $40,200 Estimated annual cash outflows $5,100 $9,810 Click here to view PV table. Calculate the net present value and profitability index of each machine. Assume a 9% discount rate.
| Machine A | Machine B | ||||
|---|---|---|---|---|---|
| Original cost | $74,500 | $183,000 | |||
| Estimated life | 8 years | 8 years | |||
| Salvage value | 0 | 0 | |||
| Estimated annual cash inflows | $20,300 | $40,200 | |||
| Estimated annual cash outflows | $5,100 | $9,810 |
| Machine A | Machine B | |
| Net Present Value | ||
| Profitability Index |
Which machine should be purchased?
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Managerial Accounting Tools for business decision making
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
6th Edition
978-0470477144, 1118096894, 9781118214657, 470477148, 111821465X, 978-1118096895
