Reference no: EM132322066
Question
1. Thunder Corporation, an amusement park, is considering a capital investment in a new exhibit. The exhibit would cost $195,010 and have an estimated useful life of 9 years. It will be sold for $68,300 at that time. (Amusement parks need to rotate exhibits to keep people interested.) It is expected to increase net annual cash flows by $28,200. The company's borrowing rate is 8%. Its cost of capital is 10%.)
Calculate the net present value of this project to the company and determine whether the project is acceptable. (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, e.g. 125.)
net present value $
the project is or not accepted ?
2. Caine Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost $182,481 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 $33,200. Management also believes that the new bottling machine will save the company money because it is expected to be more reliable than other machines, and thus will reduce downtime. Assume a discount rate of 11%. Click here to view PV table.
Calculate the net present value. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round present value answer to 0 decimal places, e.g. 125.)
Net present value$
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.)