Requirement 5

BostonBoston

Cola is considering the purchase of a? special-purpose bottling machine for

$70,000.

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:

Boston

Cola uses a required rate of return of

20?%

in its capital budgeting decisions. Ignore income taxes in your analysis. Assume all cash flows occur at? year-end except for initial investment amounts.

1. Net present value. ?(Use factor amounts rounded to three decimal places. Round your answers to the nearest whole dollar. Use a minus sign or parentheses for a negative net present? value.)

The net present value is $

(8,850)

.

2. Payback period. ?(Round your answer to two decimal? places.)

The payback period is

2.75

years.

3.

Discounted

payback period.

A.

3.713.71

B.

3.643.64

C.

Amount can not be determined

Your answer is correct.

D.

3.753.75

4. Internal rate of return? (using the interpolation? method). ?(Use a? trial-and-error approach and? straight-line interpolation as necessary. Round your answer to the nearest hundredth of a?percent, X.XX%.)

The internal rate of return (IRR) is

12.38

%.

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.) ?(Round your final answer to the nearest hundredth of a? percent, X.XX%.)

The accrual accounting rate of return (AARR) is

?????

%.

Data:savings in cash operating? costs.)

Year

Amount

1

$30,000

2

25,000

3

20,000

4

15,000

Total

$90,000

Requirements:

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.)