Final answer:
To calculate net present value (NPV) and profitability index (PI) for two diagnostic machines, using a 10% discount rate to determine which machine to purchase.
Step-by-step explanation:
A fundamental concept in finance and business decision-making known as Present Discounted Value (PDV). This concept is used to evaluate the attractiveness of investing in capital assets by comparing the present value of the investment outlay to the present value of the expected future cash flows. Using a discount rate, which in this case is 10%, the net present value (NPV) and the profitability index (PI) are calculated to determine which of the two diagnostic machines should be purchased by Blue Spruce Corp.
Although the question does not provide specific cash flow data for the machines, the general approach involves finding the net present value, which is the present value of the future cash flows minus the investment costs. If the NPV is positive, the investment is considered profitable. The profitability index is a ratio that compares the present value of future cash flows against the initial investment cost; a PI greater than 1 indicates a desirable investment.
To decide between the two machines, Blue Spruce Corp. should compare their respective NPVs and PIs. The machine with the higher NPV would generally be the better choice, but other factors such as capacity, lifespan, and operational costs could also be important.