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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
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.)
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