Net Present Value Method
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 machine's 10-year useful life, it will have no scrap value. The company's required rate of return is 12%
(Ignore income taxes)
1. Determine the net present value of the investment in the machine.
2. What is the difference between the total, un-discounted cash inflows and cash outflows over the entire life of the machine?