Exercise 13-2 Net Present Value Analysis

Special instructions: \

The calculations for this exercise are more easily done using an Excel spreadsheet, but that isnt required. You may also use a financial calculator with an NPV function. How ever you arrive at your answer, please post it on this document after the requirement section below. Include the method (equation) you used to compute your answer.

The management of Kunkel Company is considering the purchase of a $27,000 machine that would reduce operating costs by $7,000 per year. At the end of the machines five-year useful life, it will have zero salvage value. The companys required rate of return is 12%.

Required:

Determine the net present value of the investment in the machine.

What is the difference between the total, undiscounted cash inflows and cash outflows over the entire life of the machine?