Whispering Winds Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost $160,000 andhas an estimated useful life of eight years with zero salvage value. Management estimates that the new bottling machine will providenet annual cash flows of $30,000. Management also believes that the new machine will save the company money because it isexpected 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 parenthesese.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 Odecimal places, e.g. 1,250.)Net present valueHow much would the reduction in downtime have to be worth in order for the project to be acceptable?Present value of reduction in downtime$13

Net present value is a financial measure utilized to assess the viability of an investment project.…

Answered: Whispering Winds Bottling Corporation…

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

See similar textbooks

Similar questions

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.)
Baghiben
eEgg is considering the purchase of a new distributed network computer system to help handle its warehouse inventories. The system costs $60,000 to purchase and install and $30,000 to operate each year. The system is estimated to be useful for 4 years. Management expects the new system to reduce the cost of managing inventories by $62,000 per year. The firm’s cost of capital (discount rate) is 10%. Required: 1. What is the net present value (NPV) of the proposed investment under each of the following independent situations? (Use the appropriate present value factors from Appendix C, TABLE 1 and Appendix C, TABLE 2.) 1a. The firm is not yet profitable and therefore pays no income taxes. 1b. The firm is in the 30% income tax bracket and uses straight-line (SLN) depreciation with no salvage value. Assume MACRS rules do not apply. 1c. The firm is in the 30% income tax bracket and uses double-declining-balance (DDB) depreciation with no salvage value. Given a four-year life, the DDB…
Peng Company is considering buying a machine that will yield income of $2,400 and net cash flow of $16,000 per year for three years. The machine costs $48,900 and has an estimated $8,100 salvage value. Compute the accounting rate of return for this investment. Numerator: Accounting Rate of Return Denominator: = Accounting Rate of Return Accounting rate of return
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?
Sarasota Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost $450,000 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 $78,750. 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. 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 is 10%. (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 $
The Rosio Hotel Corporation is considering replacing its old hot tub with a new one at a cost of $31,000. With the new hot tub, the company expects to save $4,000 in maintenance costs per year, all cash savings. These savings in maintenance costs represent both an increase in cash flow and an increase in incremental operating income. The new hot tub has an estimated useful life of 5 years with no residual value. The company's required rate of return is 9%. The old hot tub has no residual value. Do not enter dollar signs or commas in the input boxes. Use the present value tables found in the textbook appendix. Use the negative sign for negative values. Round all answers to 2 decimal places. a) Assume the company wants to recover their initial investment on the new hot tub in five years. Based on the payback method, should the hotel purchase the new hot tub? Cash Payback Period: years Should the hotel purchase the new hot tub?: b) If the ARR method is used, should Rosio Hotel purchase…
Veer
Jamie Williams, the project manager of Arc Systems Ltd. is evaluating a proposal to install solarpanels on the roof of its factory. The panels will cost $150,000 per set. Depending on the price ofelectricity and the efficiency of the panels, the project will increase operating cash flows by either$50,000 per year or $75,000 per year. The useful life of the panels is 5 years. If early resultsindicate savings of $75,000 per year, four additional sets of panels will be installed immediatelyat the same cost with the same projected savings. The probability of either outcome is 50%. Usinga discount rate of 10%:Required:i. Compute the expected NPV of the project if the option to expand is NOT considered. ii. Compute the expected NPV of the project if the option to expand is considered. iii. Why is it important to consider real options in the capital budgeting process? GiveONE (1) specific example.
Lukow Products is investigating the purchase of automated equipment that will save $130,000 each year in direct labor and inventory carrying costs. This equipment costs $920,000 and is expected to have a 6-year useful life with no salvage value. The company's required rate of return is 11% on all equipment purchases. Management expects this equipment to provide intangible benefits such as greater flexibility and higher-quality output that will increase future cash inflows. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using table. Required: 1. What is the net present value of the piece of equipment before considering its intangible benefits? Note: Enter negative amount with a minus sign. Round your final answer to the nearest whole dollar amount. 2. What minimum dollar value per year must be provided by the equipment's intangible benefits to justify the $920,000 investment? Note: Do not round intermediate calculations. Round your…
Wildhorse Industries management is planning to replace some existing machinery in its plant. The cost of the new equipment and the resulting cash flows are shown in the accompanying table. The firm uses an 18 percent discount rate for projects like this. Should management go ahead with the project? Year 0 1 2 3 4 5 Cash Flow -$3,485,400 871,710 896,700 1,104,400 1,340,360 1,450,600 What is the NPV of this project? (Enter negative amounts using negative sign e.g. -45.25. Do not round discount factors. Round other intermediate calculations and final answer to O decimal places, e.g. 1,525.) The NPV is $
The management of XY Company is considering to purchase an equipment to be attached with the main manufacturing machine. The equipment will cost $6,000 and will increase annual cash inflow by $2,200. The useful life of the equipment is 6 years. After 6 years it will have no salvage value. The management wants a 20% return on all investments. Compute net present value (NPV) of this investment project.

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS