Question

Concord 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.

Machine A Machine B

Original cost

$76,600 $190,000

Estimated life

8 years 8 years

Salvage value

0 0

Estimated annual cash inflows

$20,000 $40,500

Estimated annual cash outflows

$5,140 $10,100

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.)

Machine A Machine B

Net present value

enter your answer in dollars rounded to 0 decimal places enter your answer in dollars rounded to 0 decimal places

Profitability index

enter your answer rounded to 2 decimal places enter your answer rounded to 2 decimal places

Which machine should be purchased?

select between machine A and machine B

should be purchased.

Answer 1