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 isn't 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 |
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Warren Buffett Accounting Book Reading Financial Statements For Value Investing
Authors: Stig Brodersen, Preston Pysh
1st Edition
1939370159, 9781939370150
