Reference no: EM132523954

America Cola is considering the purchase of a special-purpose bottling machine for $72,000. 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:

Year                          Amount

1                            $25,000

2                             24,000

3                             22,000

4                               23,000

Total                         $94,000

• America Cola uses a required rate of return of 16% in its capital budgeting decisions. Ignore income taxes in your analysis. Assume all cash flows occur at year-end except for initial investment amounts.

Required:

Question a: Calculate the following for the special-purpose bottling machine:

1. Net present value

2. Payback period

3. Discounted payback period

4. 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.)