# Angler Corp. is considering purchasing one of two new processing machines. Either machine would make it possible

## Question:

Angler Corp. 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 | $112,700 | $267,900 | ||

Estimated life | 10 years | 10 years | ||

Salvage value | -0- | -0- | ||

Estimated annual cash inflows | $30,000 | $59,800 | ||

Estimated annual cash outflows | $7,400 | $15,000 |

Calculate the net present value and profitability index of each machine. Assume an 8% discount rate.

Machine A | Machine B | |||

Net present value | $ | $ | ||

Profitability index |

Which machine should be purchased?

Angler Corp. did some further research and found one other possible machine that would produce the same type of production efficiencies. The information regarding Machine C is below:

Machine C | ||

Original cost | $250,000 | |

Estimated life | 10 years | |

Salvage value | $30000 | |

Estimated annual cash inflows | $45,000 | |

Estimated annual cash outflows | $10,000 |

Calculate the net present value and profitability index for Machine C. Use an 8% discount rate.

Rank the investments based on net present value.

Which machine would be chosen based on this calculation?

Rank the investments based on the profitability index.

Which machine would be chosen based on this calculation?

Which machine should be purchased based on all the information provided? Discuss your reasons why.

**Related Book For**

## Management Accounting Information for Decision-Making and Strategy Execution

ISBN: 978-0137024971

6th Edition

Authors: Anthony A. Atkinson, Robert S. Kaplan, Ella Mae Matsumura, S. Mark Young