E26-4 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 8 years 8 years Salvage value -O- 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 X 9% Discount Factor 5.53482 0.50187 Cash Flows Value Value Present value of net annual cash flows Present value of salvage value Il 11 Present Value ? ? ? Value ? Less: Capital investment Net present value - Profitability Index = Value Value Machine B Present value of net annual cash flows Present value of salvage value Cash Flows Value Value X 9% Discount Factor 5.53482 0.50187 II 11 Il Present Value ? ? ? Value ? Capital investment Net present value - Profitability Index=1 ? Value Value Response