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Math Help - Accounting: net present value?

  1. #1
    Junior Member
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    Accounting: net present value?

    SRB 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 $78,190 $190,200
    Estimated life 8 years 8 years
    Salvage value 0 0
    Estimated annual cash inflows $19,640 $40,360
    Estimated annual cash outflows $5,190 $8,860
    Calculate the net present value and profitability index of each machine. Assume a 9% discount rate


    achine A
    Net present value $
    Profitability index
    Machine B
    Net present value $
    Profitability index

    Any tips on how to do this? I dont know where to start.

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  2. #2
    MHF Contributor
    Joined
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    Ottawa, Canada
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    Re: Accounting: net present value?

    Don'y know where to start?! No teacher?

    A: -78,190 + 14450*8: -78190 + 14450[1 - 1/(1.09)^8] / .09 = -78190 + 79978 = 1,788

    B: - 190200 + 31500*8: -190200 + 31500[1 - 1/(1.09)^8] / .09 = -190200 + 174347 = -15,853
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