Question 12

Tailor Corp. is considering purchasing one of two new diagnostic machines. The following estimated data has been determined by management:

		Machine 1			Machine 2
Initial cost		$40,150			$50,600
Estimated life		5 years			5 years
Salvage value		$1,180			$1,450
Estimated annual cash inflows		$15,150			$20,000
Estimated annual cash outflows		$3,900			$6,950

Click here to view PV table. Calculate the profitability index assuming a 10% discount rate. (For calculation purposes, use 5 decimal places as displayed in the factor table provided, e.g. 1.25124 and final answers to 3 decimal places, e.g. 1.251.)

		Profitability Index
Machine 1
Machine 2

Based on your answer, which project should the company choose?

Machine 1Machine 2