Question
Cola is considering the purchase of a special-purpose bottling machine for$28,000.It is expected to have a useful life of 4 years with no terminal disposal
Cola is considering the purchase of a special-purpose bottling machine for$28,000.It is expected to have a useful life of 4 years with no terminal disposal value. The plant manager estimates the following savings in cash operating costs:
Year |
| Amount |
1 | $12,000 | |
2 | 10,000 | |
3 | 9,000 | |
4 | 8,000 | |
Total | $39,000 |
Calculate the following for the special purpose bottling machine:
1. | Net present value |
2. | Payback period |
3. | Discounted payback period |
4. | Internal rate of return (using the interpolation method) |
5. | Accrual accounting rate of return based on net initial investment (Assume straight-line depreciation. Use the average annual savings in cash operating costs when computing the numerator of the accrual accounting rate of return.) |
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