Southern Cola is considering the purchase of a special-purpose bottling machine for $23,000. It is expected to
Question:
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.
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.)
Step by Step Answer:
Cost Accounting A Managerial Emphasis
ISBN: 978-0132109178
14th Edition
Authors: Charles T. Horngren, Srikant M.Dater, George Foster, Madhav