1. value 10.00 points The management of Kunkel Company is considering the purcha

Question

1. value 10.00 points The management of Kunkel Company is considering the purchase of a $38,000 machine that would reduce operating costs by $8,500 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 saving:s Initial investment Net cash flow

Explanation / Answer

1) Net present value = Present value of cash inflows-Present value of cash outflows

= (8500*3.6959)-38000

Net present value = (6584.85) or (6585)

2) Difference between undiscount cash inflow and cash outflows :

Items Cash flow year Total cash flows Annual cost savings 8500 5 42500 Initial investment (38000) 1 (38000) Net cash flow (4500)

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