valhusc Bottling Corporation is considering the purchase of a ne would cost $200

ID: 2590319 • Letter: V

Question

valhusc Bottling Corporation is considering the purchase of a ne would cost $200.000 and has an estimated usefal lbie of S years aue. Management estimates that the w bos machine will proxide we bonding machine. Compan wiith zero am iwesme wal pride mes gib1 ohher shacash Bows of S34.000. anagement also believes that the new boring machine u e the company money because it is expected to be more reliabile than and thus will reduce downtime. How mach wouild the reduction ino sil save be w rate of 9%. Calculate the net present value.) 12-5 McKnight Company is considering two different. murals eschasie apal own anenditure proposals. Project A will cost $400.000, has an expected usehuil lbfie of 10 years, a mú aage value of zero, and is expected to increase net anmual cash Bows by $70.000 Poject Bo

Explanation / Answer

cash flows

9% discount factor

present value

Present value of annual cash flows

$34,000

5.53482

$188,183.88

Present value of salvage

0.50817

$188,184

capital investment

($200,000)

Net present value

($11,816)

Net present value = $11,816

The reduction in downtime would have to have a present value of at least $11,816 in order for the project to be acceptable