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Calculate net present value and profitability index

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Question - Tamarisk 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 is not equipped to do. Estimates for each machine are as follows:

 

Machine A

Machine B

Original cost

$77,700

$190,000

Estimated life

8 years

8 years

Salvage value

0

0

Estimated annual cash inflows

$24,600

$40,100

Estimated annual cash outflows

$5,000

$8,950

Required - Calculate the net present value and profitability index of each machine. Assume a 10% discount rate.

Which machine should be purchased?

Reference no: EM133143261

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