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Exercise 13-2 Net Present Value Method [LO13-2] The management of Kunkel...

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Accounting

Exercise 13-2 Net Present Value Method [LO13-2]

The management of Kunkel Company is considering the purchase of a $39,000 machine that would reduce operating costs by $9,000 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%.

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.
Net present value:

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

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