Question

Caine Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost $228,168 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 $33,500. 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 5%. 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.)

$

Answer 1

Answer
1)	Particulars	Now	$             1	$         2	$         3	$         4	$         5	$         6	$         7	$         8
	Intial Investment	$-2,28,168
	Cash Flow	$             1	$    33,500	$33,500	$33,500	$33,500	$33,500	$33,500	$33,500	$33,500
	Discount Rate @5%		$             7
	Present Value	$-2,28,168	$ 2,39,818
	Net Present Value	$   -11,650
2)	The reduction in downtime would have to be ($11,650) in order for the project to be acceptable.
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