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Western Cola is considering the purchase of a special-purpose bottling machine for $28,000. 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 $28,000. 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 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. Present Value of $1 table Present Value of Annuity of $1 table Future Value of $1 table Future Value of Annuity of $1 table Read the requirements. 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 Requirements - i Data Table - pu An Year Amount Year 1 $ 12,000 Year 2 10,000 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.) Year 3 9,000 8,000 Year 4 $ 39,000 Total Print Done Print Done
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