BostonBoston Cola is considering the purchase of a? special-purpose bottling mac
ID: 2407238 • Letter: B
Question
BostonBoston
Cola is considering the purchase of a? special-purpose bottling machine for
$ 70 comma 000$70,000.
It is expected to have a useful life of
44
years with no terminal disposal value. The plant manager estimates the following savings in cash operating? costs:
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?(Click the icon to view the savings in cash operating? costs.)
BostonBoston
Cola uses a required rate of return of
2020?%
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
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????Present Value of Annuity of $1 table
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?????Future Value of $1 table
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????Future Value of Annuity of $1 table
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Read the requirements.
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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 $
(8,850)
.
2. Payback period. ?(Round your answer to two decimal? places.)
The payback period is
years.
Data Table:
Year
Amount
1
$30,000
2
25,000
3
20,000
4
15,000
Total
$90,000
Requirements:
Calculate the following for the special purpose bottling? machine:
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.)
The net present value is $
(8,850)
.
Explanation / Answer
Solution 1:
Solution 2:
Payback period = 2 Year + ($70,000 - $55,000) / $20,000 = 2.75 years
Solution 3:
As NPV is negative, therefore discounted payback period for this machine is greater than 4 years.
Solution 4:
Lets calculate NPV at 12% and 13%.
IRR = 12% + ($484 - $0) / ($484 + $812) = 12.37%
Note: I have answered first 4 parts of the question as per chegg policy. Kindly post separate question for answer of remaining parts.
Computation of NPV - Boston Cola Particulars Period PV Factor Amount Present Value Cash outflows: Initial investment 0 1 $70,000.00 $70,000.00 Present Value of Cash outflows (A) $70,000.00 Cash Inflows Annual increase in Cash Inflows: Year 1 1 0.833 $30,000.00 $24,990.00 Year 2 2 0.694 $25,000.00 $17,350.00 Year 3 3 0.579 $20,000.00 $11,580.00 Year 4 4 0.482 $15,000.00 $7,230.00 Present Value of Cash Inflows (B) $61,150.00 Net Present Value (NPV) (B-A) -$8,850.00Related Questions
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