Brief Exercise 24-4 Caine Bottling Corporation is considering the purchase of a

Question

Brief Exercise 24-4 Caine Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost $179,788 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 $32,700. Management also believes that 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. Assume a discount rate of 11%. Click here to view PV table.
Calculate the net present value. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round present value answer to 0 decimal places, e.g. 125.)
Net present value $
How much would the reduction in downtime have to be worth in order for the project to be acceptable? (Round answer to 0 decimal places, e.g. 125.)
$
Brief Exercise 24-4 Caine Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost $179,788 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 $32,700. Management also believes that 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. Assume a discount rate of 11%. Click here to view PV table. Calculate the net present value. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round present value answer to 0 decimal places e.g. 125.) Net present value s How much would the reduction in downtime have to be worth in order for the project to be acceptable? Round answer to O decimal places,e.g.125.) Click if you would like to Show Work for this question: Open Show Work

Explanation / Answer

the reduction in downtime to be worth in order for the project to be acceptable should be $2,237 annually as at this value, the NPV would be 0.

Cash flows discount factor present value of cash flows 0 -$1,79,788 $1 -$1,79,788 1 $32,700 $0.90090 $29,459 2 $32,700 $0.81162 $26,540 3 $32,700 $0.73119 $23,910 4 $32,700 $0.65873 $21,541 5 $32,700 $0.59345 $19,406 6 $32,700 $0.53464 $17,483 7 $32,700 $0.48166 $15,750 8 $32,700 $0.43393 $14,189 NPV -$11,510

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