The Management of Kunkel The management of Kunkel Company is considering the pur

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The Management of Kunkel

The management of Kunkel Company is considering the purchase of a $21,000 machine that would reduce operating costs by $5,000 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%. Click here to view Exhibit 13B-1 and Exhibit 13B-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. Use the appropriate table to determine the discount factor(s).) 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.)

Explanation / Answer

Answer 1:

Answer 2:

Now 1 2 3 4 5 Purchase of machine -21,000 Reduced operating costs 5,000 5,000 5,000 5,000 5,000 Total cash flows -21,000 5,000 5,000 5,000 5,000 5,000 Discount factor 12% 1 0.8929 0.7972 0.7118 0.6355 0.5674 Present value -21,000 4,464 3,986 3,559 3,178 2,837 Net present value -2,976

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