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Capital Budgeting and Investment Decision Analysis

This paper covers capital budgeting techniques and investment decision analysis, emphasizing their applications in corporate finance.

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    Capital Budgeting and Investment Decision Analysis, page 1Capital Budgeting and Investment Decision Analysis60BAK Corp. is considering purchasing one of two new diagnostic machines. Either machinewould make it possible for the company to bid on jobs that it currently isn’t equipped to do.Estimatesregarding each machine are provided below.Machine AMachine BOriginal cost$78,320$181,100Estimated life8 years8 yearsSalvage value00Estimated annual cash inflows$20,110$40,280Estimated annual cashoutflows$4,860$10,200a.Calculate the net present value and profitability index of each machine. Assumea 9% discount rate.(If the net present value is negative, use either a negative signpreceding the number eg-45 or parentheses eg (45). Round answer for presentvalue to 0 decimal places, e.g. 125 and profitability index to 2 decimal places, e.g.10.50.)Machine AMachine BNet present value6086(14613)Profitability index1.080.92

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    Capital Budgeting and Investment Decision Analysis, page 2

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