The management of Kunkel Company is considering the purchase of a $44,000 machine that would reduce operating costs by $10,000 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 11%.

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).) Now 2 3 5 Purchase of machine Reduced operating costs Total cash flows Discount factor (11 %) Present value Net present value (44,000) 10,000 10,000 $ 1.110 11,100 10,000 10,000 $ 10,000 10,000 $ 10,000 10,000 $ 10,000 10,000 (44,000) S 1.000 (44,000) (32,900) 0 0 0 0 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 Flows tem Cash Flow Years Annual cost savings Initial investment Net cash flow