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 $$113,250$ $$270,000$

Estimated life $10$ years $10$ years

Salvage value $-0--0-$

Estimated annual cash inflows $$30,000$ $$60,000$

Estimated annual cash outflows $ $7,500$ $$15,000$

$($a$)$ Calculate the net present value and profitability index of each machine. Assume an $8\%$ discount

rate. Which machine should be purchased?

$($b$)$ 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 $ $30,000$

Estimated annual cash inflows $ $45,000$

Estimated annual cash outflows $ $10,000$

$(1)$ Calculate the net present value and profitability index for Machine C$.$ Use an $8\%$ discount rate.

$(2)$ Rank the investments based on net present value. Which machine would be chosen based on

this calculation?

$(3)$ Rank the investments based on profitability index. Which machine would be chosen based on

this calculation?

$(4)$ Which machine should be purchased based on all the information provided? Discuss your

reasons why.

Answer rating: 100% (QA)

a Machine A NPV 30000 7500 PVA 8 10 yr 113250 26762 PI 113250 277... View the full answer