Exercise 24-4 BAK Corp. is considering purchasing one of two new diagnostic mach
ID: 2450747 • Letter: E
Question
Exercise 24-4
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.
Click here to view the factor table.
(For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
Calculate the net present value and profitability index of each machine. Assume a 9% discount rate. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round answer for present value to 0 decimal places, e.g. 125 and profitability index to 2 decimal places, e.g. 10.50.)
Which machine should be purchased?
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Machine A Machine B Original cost $78,270 $187,500 Estimated life 8 years 8 years Salvage value 0 0 Estimated annual cash inflows $20,140 $39,530 Estimated annual cash outflows $4,840 $10,100Explanation / Answer
Particulars Machine A Machine B Estimated Annual Cash Inflows 20140 39530 Less: Estimated annual cash outflows -4840 -10100 Annual cash flows 15300 29430
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