Cullumber Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost $163,500 and has anestimated useful life of 8 years with zero salvage value. Management estimates that the new bottling machine will provide net annualcash flows of $30,700. Management also believes that the new bottling machine will save the company money because it is expectedto be more reliable than other machines, and thus will reduce downtime. Assume a discount rate of 12%. Click here to view PV table.Calculate the net present value. (If the net present value is negative, use either a negative sign preceding the number eg-45 or parentheses eg(45). For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round present value answer to O decimal places,eg. 125)Net present value$How much would the reduction in downtime have to be worth in order for the project to be acceptable? (Round answer to O decimalplaces, e.g. 125)$

Net present value is the difference between present value of all cash inflows and initial…

Answered: Cullumber Bottling Corporation is…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Porcelain Computer Company is considering purchasing two different types of servers. Server A will generate net cash inflows of $26,000 per year and have a zero residual value. Server A's estimated useful life is three years, and it costs $46,000. Server B will generate net cash inflows of $30,000 in year 1. $12,000 in year 2, and $4,000 in year 3. Server B has a $5,000 residual value and an estimated useful life of three years. Server B also costs $46,000 Porcelain Computer Company's required rate of return 14%. Read the requirements. Requirement 1. Calculate payback, accounting rate of return, net present value, and internal rate of return for both server investments. Use Microsoft Excel to calculate NPV and IRR Begin with the payback period for Server A. (Round your answer to one decimal place, X.X.) Amount invested Expected annual net cash inflow 26000 Server A Now determine the payback period for Server B. (Round your answer to one decimal place, X.X.) The payback period for…
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Whispering Winds Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost $160,000 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 $30,000. 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 11%. 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 O 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…
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Alliance Manufacturing Company is considering the purchase of a new automated drill press to replace an older one. The machine now in operation has a book value of zero and a salvage value of zero. However, it is in good working condition with an expected life of 10 additional years. The new drill press is more efficient than the existing one and, if installed, will provide an estimated cost savings (in labor, materials, and maintenance) of $6,000 per year. The new machine costs $25,000 delivered and installed. It has an estimated useful life of 10 years and a salvage value of $1,000 at the end of this period. The firm’s cost of capital is 14 percent, and its marginal income tax rate is 40 percent. The firm uses the straight-line depreciation method. Complete the following table to compute the net present value (NPV) of the investment. (Hint: Remember that, in Year 10, Alliances also receives the salvage value of the machine.) Year Cash Flow PV Interest Factor at 14%…
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Caine Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost $193,900 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 $30,600. Management also believes that the new bottling machine will save the company money because it is expected to be more reliable than other rpachines, and thus will reduce downtime. Assume a discount rate of 7%. 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 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, eg. 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.)
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Alliance Manufacturing Company is considering the purchase of a new automated drill press to replace an older one. The machine now in operation has a book value of zero and a salvage value of zero. However, it is in good working condition with an expected life of 10 additional years. The new drill press is more efficient than the existing one and, if installed, will provide an estimated cost savings (in labor, materials, and maintenance) of $6,000 per year. The new machine costs $25,000 delivered and installed. It has an estimated useful life of 10 years and a salvage value of $1,000 at the end of this period. The firm’s cost of capital is 14 percent, and its marginal income tax rate is 40 percent. The firm uses the straight-line depreciation method.a. What is the net cash flow in year 0 (i.e., initial outlay)?b. What are the net cash flows after taxes in each of the next 10 years?c. What is the NPV of the investment?d. Should Alliance replace its existing drill press?
Ivanhoe Corporation is considering purchasing a new delivery truck. The truck has many advantages over the company's current truck(not the least of which is that it runs). The new truck would cost $57,186. Because of the increased capacity, reduced maintenancecosts, and increased fuel economy, the new truck is expected to generate cost savings of $8,100. At the end of eight years, thecompany will sell the truck for an estimated $27,500. Traditionally, the company has used a general rule that it should not accept aproposal unless it has a payback period that is less than 50% of the asset's estimated useful life. Gary Smith, a new manager, hassuggested that the company should not rely only on the payback approach but should also use the net present value method whenevaluating new projects. The company's cost of capital is 8%.Calculate net present value and cash payback period

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