E25-4 Compute net present value and profitability index
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		$75,500		$180,000
	Estimated life in years		8		8
	Salvage value		-0-		-0-
	Estimated annual cash inflows		$20,000		$40,000
	Estimated annual cash outflows		$5,000		$10,000
Instructions
Calculate the net present value and profitability index of each machine. Assume a 9% discount rate.
Which machine should be purchased?
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" .

E25-4 Compute net present value and profitability index 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 $75,500 $180,000 Estimated life in years 8 8 Salvage value -0- -0- Estimated annual cash inflows $20,000 $40,000 Estimated annual cash outflows $5,000 $10,000 Instructions Calculate the net present value and profitability index of each machine. Assume a 9% discount rate. Which machine should be purchased? NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?". Machine A 9.0% Disnt Rate Cash Flows Value = Present value of net annual cash flows Less: Capital investment Net present value Present Value ? Value ? Profitability Index = ? Value Value Machine B 9% Discount Factor = Cash Flows Value X = Present value of net annual cash flows Capital investment Net present value Present Value ? Value ? Profitability Index = ? Value Value