Question
Caine Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost $169,323 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 $31,700. 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%.
Brief Exercise 24-4 Your answer is incorrect. Try again. Caine Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost $169,323 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 $31,700. 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 the factor table For calculation purposes, use 5 decimal places as displayed in the factor table provided.) 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). Round present value answer to o decimal places, e.g. 125.) Net present value -96269 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.) 96269 Click if you would like to Show Work for this question: Open Show Work
Explanation / Answer
Calculation of the Net Present Value NPV = Present Value of Cash Inflows- Cash Outflows 31700*(PVAF, 8 years, 11%)-169323 31700*5.53705-169323 $ 175524.5- $ 169323 $6,202 The Net Present Value is $ 6202