1. value: 0.00 points The management of Kunkel Company is considering the purcha

Question

1. value: 0.00 points The management of Kunkel Company is considering the purchase of a $44,000 machine that would reduce operating costs by $10,000 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 11%. 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. 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

Net present value = Present value of cash flows - Initial investment

= Operating costs * PVIFA(n,i) - 44000

= 10000 * PVIFA(5 ,11%) - 44000

= 10000 *3.6959 - 44000

= - 7041

Item Cash flow Years Total cash flows Annual cost savings 10000 `1-5 50000 Initial investment 44000 0 -44000 Net cash flow 6000

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