The management of Opry Company, a wholesale distributor of suntan products, is c
ID: 2499618 • Letter: T
Question
The management of Opry Company, a wholesale distributor of suntan products, is considering the purchase of a $20,000 machine that would reduce operating costs in its warehouse by $2,000 per year. At the end of the machine's 12-year useful life, it will have no scrap value. The company's required rate of return is 8%. (Ignore income taxes.) Click here to view Exhibit 11B-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, other intermediate calculations and final answer to the nearest whole dollar.) What is the difference between the total, undiscounted cash inflows and cash outflows over the entire life of the machine?Explanation / Answer
2) Net Cash Flow= Total cash saving in 12 years -Initial Investment
=(2000*12)-20000= $4000
Calculation of NPV Year Cah Flow Discount @8% Discounted Amount 0 20000 1 20000 1 2000 0.9259 1851.8 2 2000 0.8573 1714.6 3 2000 0.7938 1587.6 4 2000 0.735 1470 5 2000 0.6806 1361.2 6 2000 0.6302 1260.4 7 2000 0.5835 1167 8 2000 0.5403 1080.6 9 2000 0.5002 1000.4 10 2000 0.4632 926.4 11 2000 0.4289 857.8 12 2000 0.3971 794.2 NPV Cash inflow- Cash Outflow -4928 $ Ans NPV ($4,928)
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.