4.

value: 23.00 points

The management of Kunkel Company is considering the purchase of a $26,000 machine that would reduce operating costs by $6,500 per year. At the end of the machines five-year useful life, it will have zero scrap value. The companys required rate of return is 16%.

Click here to view Exhibit 8B-1 and Exhibit 8B-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

-years

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.)

Items cash Flow years total cash flow

Annual cost saving
initial investment
net cash flow