Question

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		$74,600		$182,000
Estimated life		8 years		8 years
Salvage value		0		0
Estimated annual cash inflows		$20,000		$40,200
Estimated annual cash outflows		$5,170		$10,190

Answer 1

Solutions Machine A Original cost / 74 600 I Machines 1 $ 182000 8 Years. estimated life 8 years Salvage vathel Estimated annual cash in flow { $20oud $40 200 Estimated annual cash out flow. $ 1010 present value of annual met) cash flows assume 10% is minimum annual ie (0) ů=ol required rate of return present vilove of annuity factor pracin) = (1+i)9_1 machine A - - Annual (het) cash flows = 20000-5170 = $14830. Machine-B's : Annual (net) cash flous = uogoo -10190 = $30010

present value Machine A 10830% (+0.18%; . . (1.8 T.1) = 14830 7 2-1431 2.143 70-) < 14830 x : 14143 02143 =14830*5.333 2 79088 Machine Bo s 3000x5333 2960043 33 probability ratio Machine A = 19058 11460o = 1.0607! Machine B: 160043.33/182.000 = 0.57941 So machine à should be purchased.