Paint Pro Corporation is considering purchasing one of two new mixing 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 $106,000 $175,000

Estimated Useful Life 8 years 8 years

Annual Cash Flows $30,000 $45,000

Annual cash outflow $10,000 $15,000

Instructions

Calculate the net present value and profitability index of each machine. Assume a 9% discount rate. Which machine should be purchased?

Note: factor for the present value of an ordinary annuity 8 years @9% = 5.53482