Capital budgeting with uneven cash flows. Eastern Cola is considering the purchase of a special-purpose bottling machine for $33,600. It is expected to have a useful life of seven years with a zero terminal disposal price. The plant manager estimates the following savings in cash operating costs:

Year Amount 1

2 3

4 5

6 7

Total

$12,000 9.600 7,200 6,000 4,800 3.600 3,600

$46,800 Eastern Cola uses a required rate ofreturn of 14% in its capital budgeting decisions.

Required 1. Compute the payback period.

2. Compute the net present value.

3. Compute the internal rate ofreturn.

4. Compute the accrual accounting rate of return based on net initial investment. Assume straight-line amortization. Use the average annual savings in cash operating costs when computing the numerator ofthe accrual accounting rate ofreturn.