3: The management of Kunkel Company is considering the purchase of a $21,000 mac

Question

3:

The management of Kunkel Company is considering the purchase of a $21,000 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 12%. 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. 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 flow

Explanation / Answer

Solution 1:

Solution 2:

Computation of NPV - Kunkel Company Particulars Amount Period PV Factor Present Value Cash Outflows: Cost of Investment $21,000.00 0 1 $21,000.00 Present Value of Cash Outflows (A) $21,000.00 Cash Inflows: Annual cost saving in operating cost $5,000.00 1-5 3.604776 $18,023.88 Present Value of Cash Inflows (B) $18,023.88 Net Present Value (B-A) -$2,976.12

Related Questions

Navigate

• Browse (All)
• Browse 3
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.