E·connect. ACCOUNTING Comprehensive Quiz Question 9 10.00 points Exercise 13-2 N

Question

E·connect. ACCOUNTING Comprehensive Quiz Question 9 10.00 points Exercise 13-2 Net Present Value Method [L0132] 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%, Click here to view Exhibit 138-1 and table. Exhibit 138-2, to determine the appropriate discount factor/s) using Required: 1. Determine the net present value of the investment in the machine t 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 Item Cash Flow Years Annual cost savings Initial investment Net cash flow References eBook & Resources Expanded table Difficulty 1 Easy Exercise 13-2 Net Present Value Method Learning objective 13-02 Evaliate the acceptabity

Explanation / Answer

Solution:

1.

2.

Now 1 2 3 4 5 Purchase of machine -22,000 Reduced operating costs 5,000 5,000 5,000 5,000 5,000 Total cash flows -22,000 5,000 5,000 5,000 5,000 5,000 Discount factor (16%) 1 0.862069 0.743163 0.640658 0.552291 0.476113 1/(1 + 0.16)^n Present Value -22000 4310.345 3715.815 3203.288 2761.455 2380.565 Net Present Value -5628.53

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

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