Question
The following information applies to ALL parts of capital budgeting question The Pan American Bottling Co. is considering the purchase of a new machine that
The following information applies to ALL parts of capital budgeting question The Pan American Bottling Co. is considering the purchase of a new machine that would increase the speed of bottling and save money. The net cost of this machine is $250,000 and is expected to have a useful life of 5 years, with a terminal disposal value of $10,000. Additional working capital of $25,000 is needed to keep the machine running efficiently, but this investment is fully recoverable at the end of the project. The company uses the straight-line depreciation method for its non-current assets, and its required rate of return is 10%. The annual cash flows have the following projections. Year Cash Flow 1............ $80,000 2............ 100,000 3............ 80,000 4............ 60,000 5............ 20,000 Required: Should the project be accepted? Why?
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