Ans:
1.
YEAR |
CASH FLOWS(a) |
DISCOUNTING @ 12% (b) |
PRESENT VALUE ((a)*(b)) |
|
0 |
-21000 |
1 |
-21000 |
|
1 |
5000 |
0.893 |
4465 |
|
2 |
5000 |
0.797 |
3985 |
|
3 |
5000 |
0.712 |
3560 |
|
4 |
5000 |
0.636 |
3180 |
|
5 |
5000 |
0.567 |
2835 |
|
NPV |
-2975 |
|||
Since NPV is negative, the company should not purchase machine |
||||
Calculation of discounting rates |
( 1 / ( 1 + r %)n) |
|||
Year |
||||
1 |
( 1 / ( 1 + 12%)1) |
0.893 |
||
2 |
( 1 / ( 1 + 12%)2) |
0.797 |
||
3 |
( 1 / ( 1 + 12%)3) |
0.712 |
||
4 |
( 1 / ( 1 + 12%)4) |
0.636 |
||
5 |
( 1 / ( 1 + 12%)5) |
0.567 |
||
2.
Particulars |
Cash Flow |
Years |
Total Cash Flows |
Annual cost savings |
$5,000 |
5 |
$25,000 |
Initial investment |
($21,000) |
1 |
($21,000) |
Net cash flow |
$4,000 |
||
The Net Undiscounted cash flows are $4000
The management of Kunkel Company is considering the purchase of a $21,000 machine that would reduce...
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