Tailor Corp. is considering purchasing one of two new diagnostic machines. The following estimated data...
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Accounting
Tailor Corp. is considering purchasing one of two new diagnostic machines. The following estimated data has been determined by management:
Machine 1
Machine 2
Initial cost
$40,250
$50,600
Estimated life
5 years
5 years
Salvage value
$1,050
$1,600
Estimated annual cash inflows
$15,150
$19,950
Estimated annual cash outflows
$3,900
$7,100
Click here to view PV table. Calculate the profitability index assuming a 5% discount rate. (For calculation purposes, use 5 decimal places as displayed in the factor table provided, e.g. 1.25124 and final answers to 3 decimal places, e.g. 1.251.)
Profitability Index
Machine 1
Machine 2
Based on your answer, which project should the company choose? Machine 1Machine 2
Answer & Explanation
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