Question
Exercise 13-2 Net Present Value Method [LO13-2] The management of Kunkel Company is considering the purchase of a $27,000 machine that would reduce operating costs
Exercise 13-2 Net Present Value Method [LO13-2]
The management of Kunkel Company is considering the purchase of a $27,000 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 13%. |
Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using table. |
Required: | |
1. | Determine the net present value of the investment in the machine. (Any cash outflows should be indicated by a minus sign. Use the appropriate table to determine the discount factor(s).) |
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.) |
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