The management of Opry Company, a wholesale distributor of suntan products, is c
ID: 2418080 • Letter: T
Question
The management of Opry Company, a wholesale distributor of suntan products, is considering the purchase of a $25,000 machine that would reduce operating costs in its warehouse by $4,000 per year. At the end of the machine’s 10-year useful life, it will have no scrap value. The company’s required rate of return is 12%. (Ignore income taxes.)
Click here to view Exhibit 8B-1 and Exhibit 8B-2, to determine the appropriate discount factor(s) using table.
Determine the net present value of the investment in the machine. (Any cash outflows should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, intermediate answers to the nearest dollar amount.)
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What is the difference between the total, undiscounted cash inflows and cash outflows over the entire life of the machine? (Any cash outflows should be indicated by a minus sign.)
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The management of Opry Company, a wholesale distributor of suntan products, is considering the purchase of a $25,000 machine that would reduce operating costs in its warehouse by $4,000 per year. At the end of the machine’s 10-year useful life, it will have no scrap value. The company’s required rate of return is 12%. (Ignore income taxes.)
Click here to view Exhibit 8B-1 and Exhibit 8B-2, to determine the appropriate discount factor(s) using table.
Explanation / Answer
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Item Year Cash Flow 12% factor PV of cash flows Annual cost saving 1-10 $4,000 5.65022 $22,600 Initial investment 0 -25,000 1.000 -25,000 Net present value -2,400Related Questions
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