The management of Kunkel Company is considering the purchase of a $35,000 machine that would reduce operating costs by $8,500 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? Perit Industries has $190,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: Project A Project B Cost of equipment required $190,000 $ 0 Working capital investment required $ 0 $190,000 Annual cash inflows $ 28,000 $ 48,000 Salvage value of equipment in six years$ 8,900 $ 0 Life of the project 6 years 6 years The working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries’ discount rate is 15%. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Compute the net present value of Project A. (Enter negative values with a minus sign. Round your final answer to the nearest whole dollar amount.) 2. Compute the net present value of Project B. (Enter negative values with a minus sign. Round your final answer to the nearest whole dollar amount.) 3. Which investment alternative (if either) would you recommend that the company accept? Kathy Myers frequently purchases stocks and bonds, but she is uncertain how to determine the rate of return that she is earning. For example, three years ago she paid $24,000 for 890 shares of Malti Company’s common stock. She received a $837 cash dividend on the stock at the end of each year for three years. At the end of three years, she sold the stock for $25,000. Kathy would like to earn a return of at least 13% on all of her investments. She is not sure whether the Malti Company stock provide a 13% return and would like some help with the necessary computations. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Compute the net present value that Kathy earned on her investment in Malti Company stock. 2. Did the Malti Company stock provide a 13% return? Yes or no Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The company’s discount rate is 17%. After careful study, Oakmont estimated the following costs and revenues for the new product: Cost of equipment needed Working capital needed Overhaul of the equipment in year two Salvage value of the equipment in four years Annual revenues and costs: Sales revenues Variable expenses Fixed out-of-pocket operating costs $165,000 $ 67,000 $ 10,000 $ 13,000 $320,000 $155,000 $ 77,000 When the project concludes in four years the working capital will be released for investment elsewhere within the company. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: Calculate the net present value of this investment opportunity. (Round your final answer to the nearest whole dollar amount.) Net present value: “I’m not sure we should lay out $310,000 for that automated welding machine,” said Jim Alder, president of the Superior Equipment Company. “That’s a lot of money, and it would cost us $86,000 for software and installation, and another $50,400 per year just to maintain the thing. In addition, the manufacturer admits it would cost $49,000 more at the end of three years to replace worn-out parts.” “I admit it’s a lot of money,” said Franci Rogers, the controller. “But you know the turnover problem we’ve had with the welding crew. This machine would replace six welders at a cost savings of $116,000 per year. And we would save another $7,700 per year in reduced material waste. When you figure that the automated welder would last for six years, I’m sure the return would be greater than our 13% required rate of return.” “I’m still not convinced,” countered Mr. Alder. “We can only get $18,000 scrap value out of our old welding equipment if we sell it now, and in six years the new machine will only be worth $32,000 for parts. But have your people work up the figures and we’ll talk about them at the executive committee meeting tomorrow.” Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Compute the annual net cost savings promised by the automated welding machine. Annual net cost savings: 2a. Using the data from Required 1 and other data from the problem, compute the automated welding machine’s net present value. Net present value: 2b. Would you recommend purchasing the automated welding machine? Yes or no 3. Assume that management can identify several intangible benefits associated with the automated welding machine, including greater flexibility in shifting from one type of product to another, improved quality of output, and faster delivery as a result of reduced throughput time. What minimum dollar value per year would management have to attach to these intangible benefits in order to make the new welding machine an acceptable investment? Minimun dollar value of intangliable benefits: Kent Duncan is exploring the possibility of opening a self-service car wash and operating it for the next five years until he retires. He has gathered the following information: a. A building in which a car wash could be installed is available under a five-year lease at a cost of $5,900 per month. b. Purchase and installation costs of equipment would total $320,000. In five years the equipment could be sold for about 9% of its original cost. c. An investment of an additional $9,000 would be required to cover working capital needs for cleaning supplies, change funds, and so forth. After five years, this working capital would be released for investment elsewhere. d. Both a wash and a vacuum service would be offered. Each customer would pay $1.12 for a wash and $.70 for access to a vacuum cleaner. e. The only variable costs associated with the operation would be 7.5 cents per wash for water and 10 cents per use of the vacuum for electricity. f. In addition to rent, monthly costs of operation would be: cleaning, $1,400; insurance, $75; and maintenance, $1,895. g. Gross receipts from the wash would be about $3,024 per week. According to the experience of other car washes, 60% of the customers using the wash would also use the vacuum. Mr. Duncan will not open the car wash unless it provides at least a 13% return. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Assuming that the car wash will be open 52 weeks a year, compute the expected annual net cash receipts from its operation. 2-a. What is the net present value of the investment in the car wash? 2-b. Would you advise Mr. Duncan to open the car wash? Yes or No 
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