The management of Kunkel Company is considering the purchase of a $27,000 machin
ID: 2403588 • Letter: T
Question
The management of Kunkel Company is considering the purchase of a $27,000 machine that would reduce operating costs by $7,000 per year. At the end of the machine’s five-year useful life, it will have zero scrap value. The company’s required rate of return is 12%.
Determine the net present value of the investment in the machine. (Any cash outflows should be indicated by a minus sign. Use Microsoft Excel to calculate present values. Do not round intermediate calculations.)
Item | Future Cash Recieved per year | Present Value Cash Inflows
Annual Cah Inflows/Reduced Costs $7,000
The management of Kunkel Company is considering the purchase of a $27,000 machine that would reduce operating costs by $7,000 per year. At the end of the machine’s five-year useful life, it will have zero scrap value. The company’s required rate of return is 12%.
Explanation / Answer
Determine the net present value of the investment in the machine.
Present value of cash inflows (7000*3.605) 25235 Less: Cost of machine -27000 Net present value -1765Related Questions
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