Western Cola is considering the purchase of a special-purpose bottling machine for $70,000. It is expected...
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Western Cola is considering the purchase of a special-purpose bottling machine for $70,000. 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: E (Click the icon to view the savings in cash operating costs.) Western Cola uses a required rate of return of 20% in its capital budgeting decisions. Ignore income taxes in your analysis. Assume all cash flows occur at year-end except for initial investment amounts. Present Value of $1 table Present Value of Annuity of $1 table Future Value of $1 table Future Value of Annuity of $1 table Read the requirements. 1. Net present value. (Use factor amounts rounded to three decimal places. Round your answers to the nearest whole dollar. Use a minus sign or parentheses for a negative net present value.) The net present value is Data table Requirements Year Amount Calculate the following for the special purpose bottling machine: Net present value Year 1 $ 30,000 1. Year 2 25,000 2. Payback period Year 3 20,000 Discounted payback period Internal rate of return (using the interpolation method) 3. 4. 15,000 Year 4 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.) 2$ Total 90,000 Western Cola is considering the purchase of a special-purpose bottling machine for $70,000. 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: E (Click the icon to view the savings in cash operating costs.) Western Cola uses a required rate of return of 20% in its capital budgeting decisions. Ignore income taxes in your analysis. Assume all cash flows occur at year-end except for initial investment amounts. Present Value of $1 table Present Value of Annuity of $1 table Future Value of $1 table Future Value of Annuity of $1 table Read the requirements. 1. Net present value. (Use factor amounts rounded to three decimal places. Round your answers to the nearest whole dollar. Use a minus sign or parentheses for a negative net present value.) The net present value is Data table Requirements Year Amount Calculate the following for the special purpose bottling machine: Net present value Year 1 $ 30,000 1. Year 2 25,000 2. Payback period Year 3 20,000 Discounted payback period Internal rate of return (using the interpolation method) 3. 4. 15,000 Year 4 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.) 2$ Total 90,000
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1 Calculation of Net Present Value Year 0 1 2 3 4 Machine Cost 70000 Cash Operating Cost saving 30000 25000 20000 15000 Net cash flows 70000 30000 250... View the full answer
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Corporate Finance A Focused Approach
ISBN: 978-1439078082
4th Edition
Authors: Michael C. Ehrhardt , Eugene F. Brigham
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