E12-3 TLC 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 $190,000
Estimated life 8 years 8 years
Salvage value 0 0
Estimated annual cash inflows $20,000 $40,000
Estimated annual cash outflows $5,000 $9,000
Instructions
Calculate the net present value and profitability index of each
machine. Assume a 9% discount rate. Which machine should be purchased?
Click here for the solution: TLC Corp. is considering purchasing one of two new diagnostic machines
