Question
Pharoah Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost $170,000 and has an estimated useful life of eight
Pharoah Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost $170,000 and has an estimated useful life of eight years with zero salvage value. Management estimates that the new bottling machine will provide net annual cash flows of $31,000. Management also believes that the new 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 10%. Click here to view the factor table. Calculate the net present value. (If the net present value is negative, use either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided, e.g. 1.25124. Round present value answer to 0 decimal places, e.g. 1,250.)
Net present value |
- How much would the reduction in downtime have to be worth in order for the project to be acceptable?
Present value of reduction in downtime |
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