rn New Bio Ltd is considering the purchase of a special-purpose bottling machine for 46,000. It is

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New Bio Ltd is considering the purchase of a special-purpose bottling machine for £46,000. 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 £20,000 1 £16,000 £12,000 4 £10,000 Total £58,000 New Bio Ltd uses a required rate of return of 16% in its capital budgeting decisions. Assume all cash flows occur at year-end except for initial investment amounts. Required: Write a brief report to the Managing director of New Bio Ltd. This report should have an introduction, body and conclusion. (Maximum word limit: 500 words) This report should cover the following areas: • Calculate the following for the special-purpose bottling machine: 1. Net present value 2. Payback period 3. Internal rate of return 4. Accounting rate of return based on initial investment (Assume straight-line depreciation. Use the average annual savings in cash operating costs when computing the numerator of the accounting rate of return) New Bio Ltd is considering the purchase of a special-purpose bottling machine for £46,000. 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 £20,000 1 £16,000 £12,000 4 £10,000 Total £58,000 New Bio Ltd uses a required rate of return of 16% in its capital budgeting decisions. Assume all cash flows occur at year-end except for initial investment amounts. Required: Write a brief report to the Managing director of New Bio Ltd. This report should have an introduction, body and conclusion. (Maximum word limit: 500 words) This report should cover the following areas: • Calculate the following for the special-purpose bottling machine: 1. Net present value 2. Payback period 3. Internal rate of return 4. Accounting rate of return based on initial investment (Assume straight-line depreciation. Use the average annual savings in cash operating costs when computing the numerator of the accounting rate of return)

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