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E12-4 BAK Corp. is considering purchasing

Price: $1.99

E12-4 BAK 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  $75,500 $180,000
Estimated life  8 years  8 years 
Salvage value  0 0
Estimated annual cash inflows  $20,000 $40,000
Estimated annual cash outflows  $5,000 $10,000

Calculate the net present value and profitability index of each machine. Assume a 9%
discount rate. Which machine should be purchased?

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