Problem 1: Bella Company is considering purchasing new equipment for $450,000. It is expected that the equipment will produce net annual cash flows of $50,000 over its 10-year useful life. Annual dpreciation will be $45,000. Compute the cash payback period.
Problem 2: Caine Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost $200,000 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 $34,000. 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. How much would the reduction in downtime have to be worth in order for the project to be acceptable? Assume a discount rate of 9%