What is the net present value and profitability index

Reference no: EM132825821

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.

Original cost: Machine A-$77,300 Machine B-180,000
Estimated life:Machine A-8 years, Machine B-8 years
Salvage value: Machine A-0, Machine B-0
Estimated annual cash inflows: Machine A-20,200, Machine B-40,000
Estimated annual cash outflows: Machine A-4,970, Machine B-9,860

What is the net present value and profitability index of each machine A and B. Assume there a 9% discount rate. 2nd question is which machine should be purchased?

Reference no: EM132825821

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