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SRB 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 $77,540 $189,500
Estimated life 8 years 8 years
Salvage value 0 0
Estimated annual cash inflows $19,860 $40,250
Estimated annual cash outflows $5,080 $9,120

Calculate the net present value and profitability index of each machine. Assume a 9% discount rate.

Machine A

Net present value $
Profitability index

Machine B

Net present value $
Profitability index

Which machine should be purchased?

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9973392

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