Question

0.2/1 Question o View Policies Show Attempt History Current Attempt in Progress - Your answer is partially correct. Coronado 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 $78,000 $184,000 Estimated life 8 years 8 years Salvage value Estimated annual cash inflows $19,800 $40,300 $10,160 Estimated annual cash outflows $4,820 Click here to view PV table.

Answer 1

	Machine A	Machine B
Net Present Value	$       4,912	$       -17,181
Profitability Index	1.06	0.91
Machine A should be purchased
Workings:
Machine A:
	Year	Value Flows	Present Factor @ 9%	Present Value
Initial Cost	0	$       -78,000	1	$            -78,000
Cash Inflows (19800-4820)	1 - 8	$         14,980	5.53482	$             82,912
Net Present Value				$                4,912
Machine B:
	Year	Value Flows	Present Factor @ 9%	Present Value
Initial Cost	0	$   -1,84,000	1	$        -1,84,000
Cash Inflows (40300-10160)	1 - 8	$         30,140	5.53482	$          1,66,819
Net Present Value				$            -17,181
Profitability Index
Machine A
Profitability Index	=	1 + NPV/Initial Investment
	=	1 + $4912 /$78000
	=	1.06
Machine B
Profitability Index	=	1 + NPV/Initial Investment
	=	1 + $-17181 /$184000
	=	0.91