1.Caine Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost $183,122 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 $34,400. 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 11%.(For calculation purposes, use 5 decimal places as displayed in the factor table provided.) 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). Round present value answer to 0 decimal places, e.g. 125.)
Net present value: -6,095.47
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.)
$?
2.Beacon Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $455,089, has an expected useful life of 13 years, a salvage value of zero, and is expected to increase net annual cash flows by $71,900. Project B will cost $295,434, has an expected useful life of 13 years, a salvage value of zero, and is expected to increase net annual cash flows by $48,800. A discount rate of 10% is appropriate for both projects.(For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
Compute the net present value and profitability index of each project. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round present value answers to 0 decimal places, e.g. 125 and profitability index answers to 2 decimal places, e.g. 15.25.)
Net present value - Project A $ _________?
Profitability index - Project A _________?
Net present value - Project B $ ________?
Profitability index - Project B _________?
3.Quillen Company is performing a post-audit of a project completed one year ago. The initial estimates were that the project would cost $237,916, would have a useful life of 9 years, zero salvage value, and would result in net annual cash flows of $45,500 per year. Now that the investment has been in operation for 1 year, revised figures indicate that it actually cost $234,913, will have a useful life of 11 years, and will produce net annual cash flows of $36,902 per year.Evaluate the success of the project. Assume a discount rate of 11%. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round present value answers to 0 decimal places, e.g. 125.)
Original net present value $_______?
Revised net present value $ _______?