The management of Opry Company, a wholesale distributor of suntan products, is c

Question

The management of Opry Company, a wholesale distributor of suntan products, is considering the purchase of a $42,000 machine that would reduce operating costs in its warehouse by $6,000 per year. At the end of the machine%u2019s 9-year useful life, it will have no scrap value. The company%u2019s required rate of return is 11%. (Ignore income taxes.)

Click here to view Exhibit 13B-2, to determine the appropriate discount factor(s) using table.

Determine the net present value of the investment in the machine. (Negative amount should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

What is the difference between the total, undiscounted cash inflows and cash outflows over the entire life of the machine? (Omit the "$" sign in your response.)

The management of Opry Company, a wholesale distributor of suntan products, is considering the purchase of a $42,000 machine that would reduce operating costs in its warehouse by $6,000 per year. At the end of the machine%u2019s 9-year useful life, it will have no scrap value. The company%u2019s required rate of return is 11%. (Ignore income taxes.)

Click here to view Exhibit 13B-2, to determine the appropriate discount factor(s) using table.

Explanation / Answer

Hi,

Please find the answer as follows:

Part A:

NPV = -42000 + 6000*(5.537) = -8778

Part B:

Net Cash Flow = -42000 + 6000*9 = 12000

Thanks.

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