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Sunshine Beverages Inc. is considering a new bottling machine that costs $800,000 with a life of 10 years and no salvage value. It will be

Sunshine Beverages Inc. is considering a new bottling machine that costs $800,000 with a life of 10 years and no salvage value. It will be depreciated using the straight-line method. Additional working capital of $90,000 is required, recoverable at the end of year 10. The required rate of return is 11%.

Cash Flows:

Year

Cash Flow

1

$130,000

2

$150,000

3

$170,000

4

$190,000

5

$210,000

6

$230,000

7

$250,000

8

$270,000

9

$290,000

10

$310,000

Requirements:

  1. Calculate the Payback Period.
  2. Determine the NPV.
  3. Compute the IRR.
  4. Calculate the PI.
  5. Decide on the investment based on financial metrics.

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