Sarasota Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost $450,000 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 $78,750. Management also believes that the new bottling machine will save the company money because it is expectedto be more reliable than other machines, and thus will reduce downtime.Click here to view PV tables.How much would the reduction in downtime have to be worth in order for the project to be acceptable? Sarasota's discount rate is10%. (Use the above table.) (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to O decimal places, e.g. 5,275.)Reduction in downtime would have to have a present value$

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Answered: Sarasota Bottling Corporation is…

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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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 machines, 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 O decimal places, e.g. 125.) 11178…

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