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 | $74,000 | $179,000 | |||
| Estimated life | 8 years | 8 years | |||
| Salvage value | 0 | 0 | |||
| Estimated annual cash inflows | $19,500 | $39,500 | |||
| Estimated annual cash outflows | $4,800 | $9,800 |
|
Calculate the net present value and profitability index of each machine. Assume a 9% discount rate
| Machine A | Machine B | ||||
|---|---|---|---|---|---|
| Net present value | |||||
| Profitability index |
Which machine should be purchased?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Management Accounting Information For Decision Making
Authors: Anthony A. Atkinson
7th Edition
1618533517, 9781618533517
