Question:

The management of Opry Company, a wholesale distributor of suntan products, is considering the purchase of a $25,000 machine that would reduce operating costs in its warehouse by $4,000 per year. At the end of the machine's 10-year useful life, it will have no scrap value. The company's required rate of return is 12%.

Required: (Ignore income taxes)

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

Item	Year(s)	Cash flow	12% factor	Present value of cash flows
Annual cost saving	1-10	$4000
Initial investment	now
Net present value

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

Item	Cash flow	Years	Total cash flows
Annual cost saving		10
Initial investment
Net cash flow

Question: The management of Opry Company, a wholesale distributor of suntan products, is considering the purchase of a $25,000 machine that would reduce operating costs in its warehouse by $4,000 per year. At the end of the machine's 10-year useful life, it will have no scrap value. The company's required rate of return is 12%. Required: (Ignore income taxes) 1. Determine the net present value of the investment in the machine. Item Annual saving cost Initial investment Net value Year(s) Cash flow 1-10 $4000 12% factor Present value of cash flows now present 2. What is the difference between the total, undiscounted cash inflows and cash outflows over the entire life of the machine? Item Annual cost saving Initial investment Net cash flow Cash flow Years 10 Total cash flows