1.Calculate the following for the special-purpose bottling machine:

a.Net present value

b.Payback period

c.Internal rate of return

d.Accounting rate of return based on initial investment

(Assume straight-line depreciation. Use the average annual savings in cash operating costs when computing the numerator of the accounting rate of return)

2.Comment on your results and discuss the advantages and disadvantages of the above-mentioned capital appraisal techniques.

3.Recommend, with reasons, if New Bio Ltd should purchase the special-purpose bottling machine.

New Bio Ltd is considering the purchase of a special-purpose bottling machine for 46,000. It is expected to have a useful life of four years with no terminal disposal value. The plant manager estimates the following savings in cash operating costs: Year 1 2 3 Amount 20,000 16,000 12,000 10,000 58,000 4 Total New Bio Ltd uses a required rate of return of 16% in its capital budgeting decisions. Assume all cash flows occur at year-end except for initial investment amounts