Answered: BAK Corp. is considering purchasing one…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 4P

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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.

	Machine A	Machine B
Original cost	$78,200	$182,000
Estimated life	8 years	8 years
Salvage value	0	0
Estimated annual cash inflows	$19,800	$39,600
Estimated annual cash outflows	$5,130	$10,180

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 a dollar amount rounded to 0 decimal places	enter a dollar amount rounded to 0 decimal places
Profitability index	enter the profitability index rounded to 2 decimal places	enter the profitability index rounded to 2 decimal places

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