The management of Kunkel Company is considering the purchase of a $37,000 machin

Question

The management of Kunkel Company is considering the purchase of a $37,000 machine that would reduce operating costs by $8,000 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 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 et present value This is a numeric cell, so please enter numbers only 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.) Total Cash Flows Item Cash Flow Years Annual cost savings Initial investment Net cash flow

Explanation / Answer

1 Net present value initial investment -37,000 PV of $8000*3.60478 28838.24 Net present value -8,162 2) item Cash flow years total cash flow Annual cost savings 8000 5 40,000 Intital investment -37,000 1 -37,000 Net cash flow 3,000

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