Johnson Company Is Considering Purchasing One of Two New Machines

question 158

Essay

Johnson Company is considering purchasing one of two new machines. The following estimates are available for each machine:
The company's minimum required rate of return is 9%.
Instructions
(a) Compute the (1) net present value, (2) profitability index, and (3) internal rate of return for each machine.
(b) Which machine should be purchased?

---

Definitions:

Retained Earnings

The portion of a company's profits that is kept or retained rather than distributed to shareholders or used for dividend payments.

Balance Sheet

A financial statement showing a company's assets, liabilities, and equity at a specific point in time.

Chapter 7 Bankruptcy

A process under U.S. bankruptcy law for liquidating a debtor's assets to pay off creditors before the debtor is relieved of their debts.