Managerial Accounting: BE12-4 Keane Bottling Corporation is considering a purchase of a new
BE12-4 Keane Bottling Corporation is considering a purchase of a new bottling machine. The machine will 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 $35,000. Management also believes that the new bottling machine will save the company money because it is expected to be more reliable than other machine, and this will reduce downtime.
How much will the reduction in downtime have to be worth in order for the project to be acceptable? Assume a discount rate of 9%. (Hint- Calculate the net present value)