The management of Opry Company, awholesale distributor of suntan products, is considering t hepurchase of a $29,000 machine that would reduce operating costs inits warehouse by $5,500 per year. At the end of the machine's8-year useful life, it will have no scrap value. The company'srequired rate of retum is 11%. (Ignore income taxes.)
Click here to view Exhibit 88-1 andExhibit 8B-2, to determine the appropriate discount factor(s) usingtable.
Required:
1. Determine the net present valueof the investment in the machine. (Any cash outflows should beindicated by a minus sign. Round discount factor(s) to 3 decimalplaces, intermediate to the nearest dollar amount.)
Present
Item Year(s) Cash Flow 11% Factor Value of
Annual cost savings
$ 0
Initial investment
Now
0
Net present value
$ 0
Cash Flows
1-8 h
2. \llh1at is the differencebetween the total, undiscounted cash inflows and cash outflows overthe entire life of the machine? (Any cash outflows should beindicated by a minus sign.)
Item Cash Flow Years TotalCash
Flows
!
Annual cost savings $ 0
Initial investment $ 0
Net cash flow $
0
The management of Opry Company, awholesale distributor of suntan products, is considering t hepurchase of a $29,000 machine that would reduce operating costs inits warehouse by $5,500 per year. At the end of the machine's8-year useful life, it will have no scrap value. The company'srequired rate of retum is 11%. (Ignore income taxes.)
Click here to view Exhibit 88-1 andExhibit 8B-2, to determine the appropriate discount factor(s) usingtable.
Required:
1. Determine the net present valueof the investment in the machine. (Any cash outflows should beindicated by a minus sign. Round discount factor(s) to 3 decimalplaces, intermediate to the nearest dollar amount.)
Present
Item Year(s) Cash Flow 11% Factor Value of
|
Cash Flows
1-8 h
2. \llh1at is the differencebetween the total, undiscounted cash inflows and cash outflows overthe entire life of the machine? (Any cash outflows should beindicated by a minus sign.)
Item Cash Flow Years TotalCash
Flows
! |
Annual cost savings $ 0
Initial investment $ 0
Net cash flow $
0
Related questions
The management of Kunkel Company is considering the purchase of a $22,000 machine that would reduce operating costs by $5,000 per year. At the end of the machineâs five-year useful life, it will have zero scrap value. The companyâs required rate of return is 16%.
| Required: | |||||||||||||||||||
| 1. | Determine the net present value of the investment in the machine.
| ||||||||||||||||||
