The management of Kunkel Company is considering the purchase of a $28,000 machin

Question

The management of Kunkel Company is considering the purchase of a $28,000 machine that would reduce operating costs by $7,000 per year. At the end of the machine's five-year useful life, it will have zero salvage value. The companys required rate of return is 13%. Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using table. 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? Complete this question by entering your answers in the tabs b Required 1 Required 2 Determine the net present value of the investment in the machine. (Negative amounts should be indicated by a minus sign. Use the appropriate table to determine the discount factor(s).) Net present value

Explanation / Answer

NPV = -$3379

*Since tax rate is not given, depreciation and taxes have been ignored.

Requirement 1: NPV: Year Cash Flow PVF(13%) PV of CF 0 -28000 1 -28000 1 to 5 7000 3.517231262 24620.61883 -3379.381166

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