The management of Kunkel Company is considering the purchase of a $37,000 machine that would reduce operating costs by $8,000 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 12%.

Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.

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

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			$0
Initial investment			0
Net cash flow			$0

1. The following cost data pertain to the operations of Rademaker Department Stores, Inc., for the month of March.

Corporate headquarters building lease	$82,400
Cosmetics Department sales commissions--Northridge Store	$5,860
Corporate legal office salaries	$64,200
Store manager's salary-Northridge Store	$19,900
Heating-Northridge Store	$18,500
Cosmetics Department cost of sales--Northridge Store	$34,500
Central warehouse lease cost	$8,000
Store security-Northridge Store	$19,700
Cosmetics Department manager's salary--Northridge Store	$4,490

The Northridge Store is just one of many stores owned and operated by the company. The Cosmetics Department is one of many departments at the Northridge Store. The central warehouse serves all of the company's stores.

What is the total amount of the costs listed above that are direct costs of the Cosmetics Department?

$95,540

$40,360

$34,500

$44,850

2.

Erkkila Inc. reports that at an activity level of 7,100 machine-hours in a month, its total variable inspection cost is $424,730 and its total fixed inspection cost is $183,446.

What would be the average fixed inspection cost per activity unit at an activity level of 7,400 machine-hours in a month? Assume that this level of activity is within the relevant range.

$24.79

$85.66

$25.84

$33.98