The management of Kunkel Company is considering the purchase of a $36,000 machine that would reduce operating costs by $8,500 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).)

	Now	1	2	3	4	5
Purchase of machine
Reduced operating costs
Total cash flows	$0	$0	$0	$0	$0	$0
Discount factor (13%)
Present value	0	0	0	0	0	0
Net present value	$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.)

Item	Cash Flow	Years	Total Cash Flows
Annual cost savings
Initial investment
Net cash flow