The management of Opry Company, a wholesale distributor of suntan products, is c
ID: 2524387 • Letter: T
Question
The management of Opry Company, a wholesale distributor of suntan products, is considering the purchase of a $37,000 machine that would reduce operating costs in its warehouse by $6,500 per year. At the end of the machine's 9-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 11B-2, to determine the appropriate discount factor(s) using table Required: 1. 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 Net present value 2. What is the difference between the total, undiscounted cash inflows and cash outflows over the entire life of the machine? Net cash flowExplanation / Answer
Total Cash Outflow = 37,000
Total Undiscounted Cash Inflow = 6,500*9 = 58,500
Difference Between total Undiscounted Cash Inflow and Outflow = 58,500 - 37,000 = 21,500
Year Cash Flow PVIF (Discount Factor) PV of Cash Flows 0 (37,000) 1.0000 (37,000) 1 6,500 0.8929 5,804 2 6,500 0.7972 5,182 3 6,500 0.7118 4,627 4 6,500 0.6355 4,131 5 6,500 0.5674 3,688 6 6,500 0.5066 3,293 7 6,500 0.4523 2,940 8 6,500 0.4039 2,625 9 6,500 0.3606 2,344 Net Present Value (2,366)Related Questions
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