Exercise 11-1 Net Present Value Method [LO1]

The management of Opry Company, a wholesale distributor of suntan products, is considering the purchase of a $25,000 machine that would reduce operating costs in its warehouse by $4,000 per year. At the end of the machines 10-year useful life, it will have no scrap value. The companys required rate of return is 12%. (Ignore income taxes.)

Click here to view Exhibit 11B-2, to determine the appropriate discount factor(s) using table.

Required:

1.

Determine the net present value of the investment in the machine.(Negative amount should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, other intermediate calculations and final answer to the nearest whole dollar.)

Net present value $

2.

What is the difference between the total, undiscounted cash inflows and cash outflows over the entire life of the machine?

Net cash flow $