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 machine’s five-year useful life, it will have zero salvage value. The company’s required rate of return is 16%. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using table. 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?
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 machine’s five-year useful life, it will have zero salvage value. The company’s required rate of return is 16%. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using table. 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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Exercise 14-2 (Algo) Net Present Value Analysis [LO14-2]
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 machine’s five-year useful life, it will have zero salvage value. The company’s required rate of return is 16%.
Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using table.
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?
Transcribed Image Text:EXHIBIT 14B-1
Cnapter 14 Homework Problems - Con.
M https://ezto-cf-media.mheducation.com/Media/Con.
b My Questions | bartleby
Present Value of $1;
1
(1+r))"
Periods
4%
5%
6%
7%
8%
10%
9%
11%
12%
15%
0.962 0.952
13%
14%
16%
17%
1
18%
19%
0.935 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833 0.826 0.820 0.813 0.806 0.800
0.873 0.857 0.842 0.826 0.812 0.797 0.783 0.769 0.756 0.743 0.731
0.816 | 0.794 0.772 | 0.751 0.731 0.712 | 0.693 0.675 0.658 0.641 0.624 0.6090.593 0.5790.564 0.551 0,537 0,524 0,512
21%
0.943
0.925 0.907 0.890
0.864 0.840
20%
22%
23%
24%
25%
2
0.889
0.718 0.706 0.694 0.683 0.672 0.661 0.650 0.640
0.855 0.823 0.792 0.763 0.735 0.708 0.683 0.659 0.636 0.613 0.592 0.572 0.552 0.534 0.516 0.499 0.482 0.467 0.451 0.437 0.423 0.410
0.822 | 0.784 0.747
0.790 0.746 0.705 0.666
0.760 0.711 0.665 0.623
4
5
0.747 0.713
0.713 0.681
0.650 0.621 0.593 0.567 0.543 0.519 0.497 0.476 0.456 0.437 0.419 0.402 0.386 0.370 0.355 0.341
0.630 0.596 0.564 0.5350.507 0.480 0.456 0.432 0.410 0.390 0.370 0.352 0.335 0.319 0.303 0.289 0.275 0.262
0.583 0.547 | 0.513| 0.482 0.452 | 0.425 0.400 0.376 0.354 0.333 0.314 0.296 0.279 | 0.263 0.249 0.235 0.222 0.210
6.
0.328
8
0.627 0.582 0.540 0.502 0.467 0.434 0.404 0.376 0.351 0.327 0.305 0.285 0.266 0.249 0.233 0.218 0.204 0.191
0.731
0.677
| 0.179 0.168
0.500 0.460 0.424 0.391 0.361 0.333 0.308 0.284 0.263 0.243 0.225 0.209 0.194 0.180 0.167 0.155 0.144 0.134
0.508 0.463 0.422 | 0.386 0.352 0.322 0.295 0.270 0.247 0.227 0.208 0.191 0.176 0.162 | 0.149 0.137 0.126 0.116 0.107
0.650 0.585 0.527 0.475 0.429 0.388 0.350 0.317 0.287 0.261 0.237 0.215 0.195 0.178 0.162 0.148 | 0.135 0.123 0.112 0.103 0.094 0.086
0.703
0.645 0.592 0.544
10
0.676 0.614 0.558
11
12
0.625 0.557 0.497 0.444 0.397 0.356 0.319 0.286 0.257 0.231 0.208 0.187 0.168 0.152 0.137 0.124 0.112 0.102 | 0.092
0.076
0.326 0.290 0.258 0.229 0.204 0.182 | 0.163 0,145 0.130 0.116 0.104 0.093 0.084 0.075 0.068 0.061
0.083
0.069
0.601 0.530 0.469 0.415 0.368
0.505 0.442 0.388 0.340
0.481 0.417 0.362 0.315
0.534 0.458 0.394 0.339 0.292
0.270 |
0.416 0.350 0.296 0.250
13
0.055
0.049 0.044
0.577
0.299 0.263 0.232 0.205 0.181 0.160 0.141 0.125 0.111 0.099 0.088 0.078 0.069 0.062 | 0.055
0.275 0.239 | 0.209 0.183 0.160 0.140 0.123 0.108 0.095 0.084 0.074 0.065 0.057 0.051 0.045 0.040 0.035
0.252 0.218 0.188 0.163 0.141 0.123 0.107 0.093 0.081 0.071 0.062 0.054 0.047 0.042 0.036
0.231 0.198 0.170 0.146 0.125 0.108 0.093 0.080 0.069 0.060
0.212 0.180 0.153 0.130 0.111 0.095 0.081 0.069 0.059 0.051 0.044 0.038 0.032 | 0.028
14
15
16
0.032 0.028
0.513 0.436 0.371 0.317
0.494
17
0.052 | 0.045
0.039 | 0.034 0.030
0.026
0.023
18
0.024 | 0.021 0.018
0.037 0.031 0.027 0.023
0.232 | 0.194 0.164 0.138 0.116 0.098 0.083 0.070 | 0.060 0.051
0.043
0.014
0.475 0.396 0.331
0.4560.377 0.312 0.258 0.215 0.178 0.149 0.124 0.104 0.087 0.073 0.061
0.439 0.359
0.422 | 0.342
0.406 0.326 0.262 0.211
0.390 0.310
0.375 0.295 0.233 0.184 0.146 0.116 0.092 0.074 0.059 0.047 0.038 0.030 0.024
19
0.277
0.043
0.020 | 0.017
0.016 | 0.014 0.012
0.009
0.037 0.031
|
0.026 | 0.022 0.018
0.032 0.026 0.022 0.018 0.015 0.013
20
0.051
0.026 0.022 0.019
0.164 0.135 0.112 0.093 0.077 0.064 0.053 0.044 0.037 0.031
0.150 0.123 0.101 0.083 0.068 0.056 0.046 0.038
| 0.011
0.009
| 0.007 0.006
0.006 0.005
0.004
0.015 0.013
0.294 0.242 0.199
0.226 0.184
21
0.007
22
0.012 0.010 0.009
0.170 0.138 0.112 0.091
0.197 | 0.158 0.126 0.102 | 0.082| 0.066 0.053
0.074 0.060 0.049 0.040 0.033 | 0.027 0.022 | 0.018 0.015
0.023 0.019 0.015 0.013
0.020 0.016 0.013 0.010
23
0.010 | 0.008 0.007
0.009 0.007 |
0.007 | 0.006
0.043 0.035 0.028
24
0.247
0.006 | 0.005
0.005 | 0.004 0.003
0.004
25
0.011
0.066 0.053 0.042 0.033
0.060 0.047 0.037
0.042 0.033
0.029
0.026 0.021 0.017
0.014
0.009
0.220 0.172 0.135 0.106
0.207 0.161
0,281
0.084
0.361
0.347
26
0.003
0.002
0.029 0.023
0.026 0.020
0.022 0.017
0.009 0.007
0.018 0.014 0.011
0.010
0.006 0.005
0.125 0.098 0.076
0.150 0.116 0.090 0.069 0.054
0.082
0.268
0.002 | 0.002
0.002 | 0.002
0.002 0.002 0.001
0.000 | 0.000 0.000
27
0.016 | 0.012 | 0.008
0.006 | 0.005
0.004
0.003
0.255 0.196
0.243 0.185
0.231| 0.174
0.208 0.142 0.097
0.333
0.321
0.003
0.003
0.000
28
0.004
0.002
0.008 | 0.006
0.009 0.007 0.005
0.037
0.014 0.011
0.005
0.063 | 0.048
0.057 0.044 0.033 0.026
0.022 0.015 | 0.011 | 0.008 0.005 0.004 0.003
29
0.141
0.107
0.004
0.003
0.020
0.015
0.012
30
0.308
0.131
0.099
0.075
0.002 | 0.001 | 0.001
0.001
0.000
0.067
0.046 0.032
40
Transcribed Image Text:EXHIBIT 14B-2
D My Questions | bartleby
Present Value of an Annuity of $1 in Arrears;
((1 +r))"
Periods
4%
5%
6%
7%
8%
13%
11%
0.926 0.917 0.909 0.901
1.759 | 1.736 1.713
2.531 2.487 2.444
9%
10%
12%
14%
15%
16%
17%
18%
19%
20%
21%
25%
0.893 0.885 0.877 0.870 0.862 | 0.855 0.847 0.840 0.833 0.826 0.820 0.813 0.806 0.800
1.492 1.474 1.457 1.440
22%
23%
24%
0.962 0.952 0.943
1.886
2.775 2.723
3.630 3.546
1
2
1.859
1.833 1.808
1.690 1.668 1.647 1.626 1.605 1.585
2.402 2.361 2.322 2.283 2.246 2.210 2.174 2.140 2.106 | 2.074 2.042 2.011
1.783
1.566 1.547
1.528
1.509
3
2.673
2.624 2.577
1.981
1.952
3.312 3.240
3.993 3.890 3.791 3.696 3.605 3.517 3.433 3.352 3.274 3.199 3.127 3.058 2.991
4
3.465
3.387
3.170 3.102 3.037 2.974 2.914 2.855 2.798 2.743 2.690 2.639 2.589 2.540 2.494
2.448
2,404 2.362
2.926 2.864 2.803 2.745 2.689
3.167 3.092 3.020 2.951
5.033 4.868 4.712 4.564 4.423 4.288 4.160 4.039 3.922 3.812 3.706 3.605 3.508 3.416 3.327 3.242 3.161
3.329
3.566 3.463
4.054 3.923 3.799 3.682 3.571
4.452
5.242 5.076 4.917
5
4.329
4.212
4.100
6.
4.767
4.623
4.486 4.355 4.231
4.111 3.998 3.889 3.784 3.685 3.589 3.498 | 3.410 | 3.326 3.245
5.786 5.582 5.389 5.206
6.463 6.210 5.971
6.002
4.639 4.487 4.344 4.207 4.078 3.954 3.837 3.726 3.619
3,518
3,421
5.535 5.335 5.146 4.968 4.799
5.995 5.759 5.537 5.328 5.132 4.946 4.772 4.607 4.451 4.303 4.163 4.031 3.905 3.786 3.673
6.418 6.145 5.889 5.650 5.426 5.216 5.019 4.833 4.659 4.494 4.339
8.
6.733
5.747
6.247
7.024 6.710
7.139
9
7.435 7.108
6.802
6.515
10
8.111
7.722
7.360
4.192
6.805 6.495 6.207 5.938 5.687 5.453 5.234. 5.029 4.836 4.656 4.486 4.327 4.177 4.035 3.902 3.776 3.656
7.161 6.814 6.492 6.194 5.918 5.660 5.421 5.197 4.988 4.793 4.611 4.439 4.278 4.127 3.985 3.851 3.725
5.842 5.583 5.342 5.118 4.910 | 4.715 4.533 4.362 4.203 4.053 3.912 3.780
7.786 7.367 6.982 6.628 6.302 6.002 5.724 5.468 5.229 5.008 4.802 4.611 4.432 4.265 4.108 3.962 3.824
8.306 7.887
8.760 |
9.385 8.863
11
7.499
12
8.384
7.943
8.358 7.904 7.487 7.103 6.750 6.424
8.745
13
9.986 9.394 8,853
6.122
10.563 9.899 9.295
11.118 10.380 9.712
14
8.244
7.606 7.191
6.811
6.462 6.142 5.847 5.575 5.324 5.092 4.876 4.675 4.489 4.315 4.153
4.001| 3.859
15
9.108
8.559
8.061
8.313 7.824 7.379 6.974 6.604 6.265 5.954 5.668 5.405 5.162 4.938 4.730 4.536 4.357 4.189 4.033 3.887
3.910
11.652 10.838 10.106 9.447 8.851
12.166 11.274 10.477 9.763
12.659 11.690 10,828 10.059 9.372
16
8.544 8.022 7.549 7.120 6.729 6.373 6.047 5.749 5.475 5.222 4.990 4.775 4.576 4.391
8.756 8.201 7.702 7.250 6.840| 6.467 6.128 5.818 5.534 5.273 5.033 4.812 4.608 4.419 4.243 4.080
4.219 4.059
17
9.122
3.928
18
3.942
8.365 7.839 7.366 6.938 6.550
9.129 8.514 7.963 7.469 7.025 6.623
6.198 5.877 5.584 5.316 5.070 4.843 4.635 4.442 4.263 4.097
13.134 12.085 11.158 10.336 9.604 8.950
13.590 12.462 11.470 10.594 9.818
14.029 12.821 | 11.764 | 10.836 | 10.017 9.292 |
14.451 13.163 12.042 11.061 10.201 9.442 8.772 8.176 7.645 7.170 6.743 6.359
14.857 13.489 12.303 11.272 10.371 9.580
15.247 13.799 12.550 11.469 10.529 9.707 8.985 8.348 7.784 7.283 6.835 6.434 6.073 5.746 5.451 5.182 4.937 4.713 4.507 4.318 4.143
15.622 14.094 12.783 11.654 10.675 9.823
15.983 14.375 13.003 11.826 10.810 9.929 9.161
16.330 14.643 13.211 11.987 10.935 10.027 9.237 8.548 7.943 7.409 6.935 | 6.514 6.136 5.798 5.492 5.215 4.964 4.734 | 4.524 4.332 4.154 3.990
16.663 14.898 13.406 12.137 11.051 10.116 9.307
16.984 15.141 13.591 12.278 11.158 10.198 9.370 8.650 8.022 7.470 6.983 6.551 6.166 5.820 5.510 5.229 | 4.975 4.743 4.531
17.292 15.372 13.765 12.409 11.258 10.274 9.427 8.694 8.055 7.496 7.003 6.566 6.177 5.829 5.517 5.235 4.979 4.746 4.534 4.339 4.160
19.793 17.159 15.046 13.332 11.925 10.757 9.779 8.951 8.244
6.259 5.929 5.628 5.3535.101 4.870 4.657 4.460 4.279 4.110 3.954
4.121 | 3.963
4.130 | 3.970
4.137 | 3.976
19
8.649 8.075 7.562 7.102 6.687 6.312 5.973 5.665 5.384 5.127 4.891 4.675 4.476 4.292
6.011 5.696 5.410 5.149 4.909 4.690 4.488 4.302
20
21
22
23
8.883 8.266 7.718 7.230 6.792 6.399 6.044 5.723 5.432 5.167 4.925 4.703 4.499 4.311
3.981
4.514 4.323 4.147
4.151
3.985
24
9.077 8.422 7.843 7.330 6.873 6.464 6.097 5.766 5.467 5.195 4.948 4.721
3.988
25
6.118 5.783 5.480 5.206 4.956 4.728 4.520 4.328
8.488 7.896 7.372 6.906 6.491
26
4.335 4.157 3.992
4.337 4.159 3.994
3.995
27
8.602 7.984 7.441 6.961 6.534 6.152 5.810 5.502 5.223 4.970 4.739 4.528
28
29
30
7.634 7.105 6.642 6.233 5.871 5.548 5.258 4.997 4.760 4.544 4.347 4.166 3.999
40
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