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Calculate the net present value of each machine

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Bailey Corporation is considering purchasing one of two new processing machines. Either machine would make it possible for the company to produce its products more efficiently than it is currently equipped to do. Estimates regarding each machine are provided below:

                                                           Machine A                         Machine B

Original cost                                  $113,250                   $270,000

Estimated life                                   10 years                   10 years

Salvage value                                         -0-                         -0-

Estimated annual cash inflows               $30,000                   $60,000

Estimated annual cash outflows                $ 7,500                    $15,000

Question 1: Calculate the net present value and profitability index of each machine. Assume an 8% discount rate. Which machine should be purchased?

Reference no: EM132564641

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