Evaluate the net present value of the investment in the machine.
The management of Kunkel Company is considering the purchase of a $40,000 machine that would reduce operating costs by $7,000 per year. At the end of the machine eight-year useful life, it will have zero scrap value. The company required rate of return is 12% on all investment projects.
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?