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  1. business
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  3. (a) calculate the net present value and profitabil

(a) Calculate the net present value and profitability index of each machine. Assume an 8%...

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Accounting

(a) Calculate the net present value and profitability index of each machine. Assume an 8% discount rate. Which machine should be purchased?

Machine A Machine B

Original cost $113,250 $270,000

Estimated life 10 years 10 years

Salvage value --0- -0-

Estmated annuual cash inflows $30,000 $60,000

Estimate annual cash outflows $7,500 $15,000

(b) Angler Corp. did some further research and found one other machine that would produce the same type of production efficiences. The information regarding Machine C is below:

Machine C

Original cost $250,000

Estimated life 10 years

Salvage value $30,000

Estmated annuual cash inflows $45,000

Estimate annual cash outflows $10,000

(1) Calculate the net present value and profitablity index for Machine C. Use an 8% discount rate.

(2) Rank the investments based on net present value. Which machine would be chosen based on this calculation?

(3) Rank the investments based on profitabilty index, Which machine would be chosen based on this calculation?

(4) Which machine should be purchased based on all the informaion provided? Discuss your reasons why.

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