The management of Kunkel Company is considering the purchase of a $22,000 machin
ID: 2583987 • Letter: T
Question
The management of Kunkel Company is considering the purchase of a $22,000 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 of return is 16%.
Determine the net present value of the investment in the machine.
What is the difference between the total, undiscounted cash inflows and cash outflows over the entire life of the machine?
Required: 1.Determine the net present value of the investment in the machine.
2.What is the difference between the total, undiscounted cash inflows and cash outflows over the entire life of the machine?
Item Cash Flow Years Total Cash Flows Annual Cost Savings $ Initial Investment $ Net Cash Flow $Explanation / Answer
1. Determine the net present value of the investment in the machine.
Net present value = Present value of cash inflow-Present value of cash outflow
= (5000*3.27429)-22000
Net present value = (5628.55)
2.What is the difference between the total, undiscounted cash inflows and cash outflows over the entire life of the machine?
Item Cash Flow Years Total Cash Flows Annual Cost Savings 5000 5 $25000 Initial Investment 22000 1 $22000 Net Cash Flow $3000Related Questions
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