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Western Cola is considering the purchase of a special-purpose bottling machine for $80,000. It is expected to have a useful life of 4 years with
Western Cola is considering the purchase of a special-purpose bottling machine for $80,000. 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: Click the icon to view the savings in cash operating costs.) Western Cola uses a required rate of return of 14% in its capital budgeting decisions. Ignore income taxes in your analysis. Assume all cash flows occur at year-end except for initial investment amounts. i Data Table X Year Amount Year 1 $ 35,000 Year 2 30,000 Year 3 20,000 Year 4 12,000 $ 97,000 Total 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.)
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