caine bottling corporation is considering the purchase of a new bottling machine

Question

caine bottling corporation is considering the purchase of a new bottling machine. The manchine would cost $200,000 and has an estimated useful life of 8 years with zero salvage value. Management estimates that the new bottling machine will provide net annual cash flows of $34,000. Management also believes the new bottling machine will save the company money because it is expected to be more reliable than other machines, and thus will reduce downtime. how much would the reduction in downtime have to be worth in order for the project to be acceptable? Assume a discount rate of 9%. (Hint: calculate the net present value

Explanation / Answer

net present value= -200000+ 34000PVIFA(9%,8)= $-11816.8 reduction in downtime have to be worth in order for the project to be acceptable= $11816.8

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