Caine Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost $187,400 andhas an estimated useful life of 8 years with zero salvage value. Management estimates that the new bottling machine willprovide net annual cash flows of $35,400. Management also believes that the new bottling machine will save the companymoney because it is expected to be more reliable than other machines, and thus will reduce downtime. Assume a discountrate of 12%. Click here to view PV table.Calculate the net present value. (If the net present value is negative, use either a negative sign preceding the number eg -45or parentheses eg (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided. Roundpresent value answer to 0 decimal places, e.g. 125.)Net present value$How much would the reduction in downtime have to be worth in order for the project to be acceptable? (Round answer to 0decimal places, e.g. 125.)$%24

Name: Caine Bottling Corporation is considering the purchase of a new bottl
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Description: Caine Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost $187,400 andhas an estimated useful life of 8 years with zero salvage value. Management estimates that the new bottling machine willprovide net

Net present value The present value of all future cash flows, discounted back to the present time at the proper discount rate, less the cost to obtain those cash flows, is the net present value. Net present value = Present value of Cash Inflows - Initial Investment =35400 * 4.96764 - 187400 = $-11,546 Reduction in downtime worth = $11546/4.96764 = $2,324

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life of 8 years with zero salvage value. Management estim. flows of $35,400. Management also believes that the new ected to be more reliable than other machines, and thus wi o view PV table. t value. (If the net present value is negative, use either a ne

life of 8 years with zero salvage value. Management estim. flows of $35,400. Management also believes that the new ected to be more reliable than other machines, and thus wi o view PV table. t value. (If the net present value is negative, use either a ne

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Depreciation Methods

The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.

Depreciation Accounting

In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.

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Question

Caine Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost $187,400 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 $35,400. 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 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 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.)
$
%24

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