capital budgeting with uneven cash flows no income taxes south 268664

Capital budgeting with uneven cash flows, no income taxes. Southern Cola is considering the purchase of a special purpose bottling machine for $23,000. 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:

Southern 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.

Calculate the following for the special purpose bottling machine:

1. Net present value

2. Payback period

3. Internal rate of return

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 ofreturn.)