# Managerial Accounting: E24-4 BAK Corp. is considering purchasing one of two new

Managerial Accounting

Exercise 24-4

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 - -

Estimated annual cash inflows 20,000 40,000

Estimated annual cash outflows 5,000 10,000

(For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

Calculate the net present value and profitability index of each machine. Assume a 9% discount rate. Which machine should be purchased? (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round answer for present value to 0 decimal places, e.g. 125 and profitability index to 2 decimal places, e.g. 10.50.)

Exercise 24-4

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 - -

Estimated annual cash inflows 20,000 40,000

Estimated annual cash outflows 5,000 10,000

(For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

Calculate the net present value and profitability index of each machine. Assume a 9% discount rate. Which machine should be purchased? (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round answer for present value to 0 decimal places, e.g. 125 and profitability index to 2 decimal places, e.g. 10.50.)

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