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MBA, Ph.D in Management
Harvard university
Feb-1997 - Aug-2003
Professor
Strayer University
Jan-2007 - Present
Arrow 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 $78,250 $183,600 Estimated life 8 years 8 years Salvage value
Estimated annual cash inflows
Estimated annual cash
outflows 0 0 $20,450 $40,010 $4,960 $10,000 a. Calculate the net present value and profitability index of each machine. Assume
a 9% discount rate. (If the net present value is negative, use either a negative sign
preceding the number eg -45 or parentheses eg (45). Round answer for present
value to 0 decimal places, e.g. 125 and profitability index to 2 decimal places,
e.g. 10.50.)
Machine
A Machine
B Net present value
Profitability index b. Which machine should be purchased?
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