Original cost Estimated life Salvage value Estimated annual cash inflows Estimated annual cash outflows Net present value $ Machine A $220,000 Profitability index 8 years 0 $72,000 $31,000 Machine B $294,000 Click here to view PV tables. Calculate the net present value and profitability index of each machine. Assume a 9% discount rate. (Round net present value to the nearest whole dollar, eg. 5,275 and profitability index to 2 decimal places, eg 15.25. Enter negative amounts using either a negative sign preceding the number eg.-45 or parentheses eg. (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided) Machine A 8 years 0 $87,000 $36,000 Machine B
Original cost Estimated life Salvage value Estimated annual cash inflows Estimated annual cash outflows Net present value $ Machine A $220,000 Profitability index 8 years 0 $72,000 $31,000 Machine B $294,000 Click here to view PV tables. Calculate the net present value and profitability index of each machine. Assume a 9% discount rate. (Round net present value to the nearest whole dollar, eg. 5,275 and profitability index to 2 decimal places, eg 15.25. Enter negative amounts using either a negative sign preceding the number eg.-45 or parentheses eg. (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided) Machine A 8 years 0 $87,000 $36,000 Machine B
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Indigo 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
Estimated life
Salvage value
Estimated annual cash inflows
Estimated annual cash outflows
Click here to view PV tables.
Net present value $
Profitability index
Machine A
$220,000
Byears
O
Machine A
Calculate the net present value and profitability index of each machine. Assume a 9% discount rate. (Round net present value to the
nearest whole dollar, eg. 5,275 and profitability index to 2 decimal places, eg 15.25. Enter negative amounts using either a negative sign
preceding the number eg -45 or parentheses eg. (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided)
Machine B
Which machine should be purchased?
$72,000
$31,000
Machine A
Machine B
$294,000
8 years
0
587.000
$36.000
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