The management of Kunkel Company is considering the purchase of a $20,000 machine that would...
Question:
The management of Kunkel Company is considering the purchase of a $20,000 machine that would reduce operating costs by $5,000 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 13%.
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.)
Net Present Value:
The term net present value.is the difference between the present value of the cash flows an entity perceives to receive and the initial outflow for the investment. It is used to rank the potential projects an entity is planning to invest in.
Answer and Explanation: 1
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View this answer1. Determine the net present value of the investment in the machine.
The required rate is 13%
To get the net present value, get the difference...
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Evaluating a Budget Using the Net Present Value Method
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The net present value (NPV) method considered future cash flows to evaluate the value of capital projects—those that increase or decrease an enterprise's value. Learn how this method is calculated and guides budget decisions.
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