Chapter 11-3 homework.docx - Chapter 11-3 Homework#1 The management of Kunkel Company is considering the purchase of a \$25,000 machine that would reduce

# Chapter 11-3 homework.docx - Chapter 11-3 Homework#1 The...

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Chapter 11-3 Homework #1 The management of Kunkel Company is considering the purchase of a \$25,000 machine that would reduce operating costs by \$6,000 per year. At the end of the machine’s five-year useful life, it will have zero scrap value. The company’s required rate of return is 12%. 1. Determine the net present value of the investment in the machine. Net present value (3,370) 2.What is the difference between the total, undiscounted cash inflows and cash outflows over the entire life of the machine?
1. Compute the project's net present value to the nearest dollar. Net present value \$63,667 Now 1 2 3 4 5 Purchase of equipment \$ (3,800,000) Sales \$ 3,200,000 \$ 3,200,000 \$ 3,200,000 \$ 3,200,000 \$ 3,200,000 Variable expenses (1,350,000 ) (1,350,000) (1,350,000) (1,350,000) (1,350,000 ) Out-of-pocket costs (670,000) (670,000) (670,000) (670,000) (670,000) Total cash flows (a) \$ (3,800,000) \$ 1,180,000 \$ 1,180,000 \$ 1,180,000 \$ 1,180,000 \$ 1,180,000 Discount factor (b) 1.000 0.862 0.743 0.641 0.552 0.476 Present value (a) × (b) \$ (3,800,000) \$ 1,017,160 \$ 876,740 \$ 756,380 \$ 651,360 \$ 561,680 Net present value \$ 63,320 2.

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