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 four years with no terminal disposal value. The plant manager estimates the following savings in cash operating costs:
Year Amount
1........ $10,000
2........ 8,000
3........ 6,000
4........ 5,000
Total...... $29,000
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.

  • CreatedJuly 31, 2015
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