Southern Cola is considering the purchase of a special purpose bottling machine for $$28,000.$

It is expected to have a useful life of $7$ years with a zero terminal disposal price. The plant manager

estimates the following savings in cash$-$operating costs:Year Amount

$1$ $ $10,000$

$28,000$

$36,000$

$45,000$

$54,000$

$63,000$

$73,000$

Required: $1.$ Compute the pay back period net of income taxes assuming a $40\%$ tax rate using straight$-$line

depreciation on the special purpose bottling machine

$2.$ Compute the accrual accounting rate of return net of income taxes based on the

net initial investment. Use the average annual savings in cash$-$operating costs when

computing the numerator of the accrual accounting rate of return. Assume the straight line

method is used when computing depreciation. $($Assume a $40\%$ income tax rate$).$