| eztomheducation.com/hm.tpx Exercise 11-2 Net Present Value Method [L011-2] of
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| eztomheducation.com/hm.tpx Exercise 11-2 Net Present Value Method [L011-2] of Kunkel Company is considering the purchase of a $27,000 machine that would reduce The management 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 I life, it tables. Required: 1. Determine the net present value of the investment in the machine. Net present value 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 flowExplanation / Answer
Initial investment $27000
Cash inflows $7000
Discount rate 12%
Useful life 5 years
PV of annuity of 12% for 5 years 3.60478
Total PV of cash flows $25233.46
Net present value = $25233.46 - $27000
= ($1766.54)
Item Cash flow Years Total cash flows
Annual cost savings $7000 5 $35000
Initial investment $27000 1 $27000
Net cash flow $8000.
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