BAK Corp. is considering purchasing one of two new diagnostic machines. Either m
ID: 2487109 • Letter: B
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 it currently isn’t equipped to do. Estimates regarding each machine are provided below.
Click here to view PV table.
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. For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
Which machine should be purchased?
Explanation / Answer
As machine A is positive NPV so it should be purchsed.
NPV=pRESENT VALUES OF CASH INFLOES -pRESENT VALUES OF CASH OUTFLOWS
Machine 1 Machine 2 Year Cash Inflows Cash Outflows Net cash flow PV at 9% Present values of cash flows Cash Inflows Cash Outflows Net cash flow PV at 9% Present values of cash flows 77300 -77300 -77300 -180000 -180000 1 20200 4970 15230 0.9174 13972 40000 9860 30140 0.9174 27650 2 20200 4970 15230 0.8417 12819 40000 9860 30140 0.8417 25369 3 20200 4970 15230 0.7722 11761 40000 9860 30140 0.7722 23274 4 20200 4970 15230 0.7084 10789 40000 9860 30140 0.7084 21351 5 20200 4970 15230 0.6499 9898 40000 9860 30140 0.6499 19588 6 20200 4970 15230 0.5963 9082 40000 9860 30140 0.5963 17972 7 20200 4970 15230 0.547 8331 40000 9860 30140 0.547 16487 8 20200 4970 15230 0.5019 7644 40000 9860 30140 0.5019 15127 NPV 6995 NPV -13181Related Questions
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