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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
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Phoniex University
Oct-2001 - Nov-2016
Chapter 8-2
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%.
Click here to view Exhibit 8B-1 and Exhibit 8B-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 | Â Â |
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 | Â | Â | Â |
| Initial investment | Â | Â | Â |
| Net cash flow | Â |
Â
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