The management of Kunkel Company is
considering the purchase of a $20,000 machine that would reduce operating
costs by $5,000 per year. At the end of the machine’s five-year useful life,
it will have zero scrap value. The company’s required rate of return is 13%.

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Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount
factor(s) using tables.

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? (Any cash outflows should be indicated by a minus sign.)