The management of Kunkel Company is considering the purchase of a $21,000 machin
ID: 2467777 • Letter: T
Question
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 ot return is 12% Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables Required 1. 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).) Purchase of machine Reduced operating costs Total cash flows Discount factor (12%) Present value Net present value 0 $ 0 $ 0 $ 0 $ 0 $ 2. 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.) Cash Flovw Total Cash Flows Item Years Annual cost savings Initial investment Net cash flowExplanation / Answer
Details Now Year 1 Year 2 Year 3 Year 4 Year 5 1 Purchase Of Machine (21,000) Reduced Operating Cost 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 0.893 0.797 0.712 0.636 0.567 Present Value (21,000) 4,465 3,985 3,560 3,180 2,835 NPV = (2,975) 2 Item Cash Flow Years Total Cash flow Annual Cost Saving 5,000 5 25,000 Initial Investment (21,000) 1 (21,000) Net Cash Flow 4,000
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.