Boston Cola is considering the purchase of a special-purpose bottling machine for $35,000.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:Boston Cola uses a required rate of return of 14% in its capital budgeting decisions. Ignore income taxes in your analysis. Assume all cash flows occur at year-end except for initial investment amounts.Data TableYearAmountYear 1$15,000Year 211,000Year 310,000Year 48,000Total$44,000 (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.)Calculate the following for the special purpose bottling machine:1.Net present value2.Payback period3.Discounted payback period4.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.) . ### Present Value of $1 TableThis table provides the present value of $1 for different interest rates and periods. It can be used to determine the current worth of a future sum of money.#### Columns- **Interest Rates (2% to 40%)**: The table shows various interest rates in increments, specifically 2%, 4%, 6%, 8%, 10%, 12%, 14%, 16%, 18%, 20%, 22%, 24%, 26%, 28%, 30%, 32%, and 40%.#### Rows- **Periods (1 to 40)**: The table lists periods from 1 to 40, correlating to the number of compounding periods or years for the calculation.### Example Data Interpretation- **Period 1 at 2%**: The present value of $1 is 0.980.- **Period 10 at 10%**: The present value of $1 is 0.386.- **Period 40 at 40%**: The present value of $1 is 0.000.### UsageTo calculate the present value of a future cash flow, multiply the cash flow by the appropriate table value, based on the expected interest rate and period.This table is a critical tool in financial calculations, enabling users to make informed decisions about investments, savings, and loans. ### Present Value of Annuity of $1.00 in ArrearsThis table shows the present value of an annuity of $1.00 in arrears, listed over various periods (1 to 40), and at different interest rates (ranging from 2% to 40%). The values represent how much $1 received at the end of each period is worth today, discounted back at these specified rates.**Columns and Descriptions:**- **Periods**: Number of payment periods from 1 to 40.- **Interest Rates (Columns)**: The table includes interest rates of 2%, 4%, 6%, 8%, 10%, 12%, 14%, 16%, 18%, 20%, 22%, 24%, 26%, 28%, 30%, 32%, and 40%.- **Values**: Each cell shows the present value of an annuity for $1 received at the end of each period, discounted at the column's specified interest rate.**Usage:**- This table is valuable in finance for computing the present value of annuity payments, which is essential for investment analysis, retirement planning, and loan amortization.*Note: “Payments (or receipts) at the end of each period” signifies that the annuity payments are made at the end of each period, a standard practice in financial calculations.*

As per the guidelines of bartleby we are supposed to answer only 3 subparts. a) Net Present Value…

Answered: Boston Cola is considering the purchase…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Boston Cola is considering the purchase of a special-purpose bottling machine for $35,000.

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:

Boston Cola uses a required rate of return of 14% in its capital budgeting decisions. Ignore income taxes in your analysis. Assume all cash flows occur at year-end except for initial investment amounts.

Data Table

Year	Amount
Year 1	$15,000
Year 2	11,000
Year 3	10,000
Year 4	8,000
Total	$44,000

(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.)

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.)

### Present Value of $1 Table

This table provides the present value of $1 for different interest rates and periods. It can be used to determine the current worth of a future sum of money.

#### Columns

- **Interest Rates (2% to 40%)**: The table shows various interest rates in increments, specifically 2%, 4%, 6%, 8%, 10%, 12%, 14%, 16%, 18%, 20%, 22%, 24%, 26%, 28%, 30%, 32%, and 40%.

#### Rows

- **Periods (1 to 40)**: The table lists periods from 1 to 40, correlating to the number of compounding periods or years for the calculation.

### Example Data Interpretation

- **Period 1 at 2%**: The present value of $1 is 0.980.
- **Period 10 at 10%**: The present value of $1 is 0.386.
- **Period 40 at 40%**: The present value of $1 is 0.000.

### Usage

To calculate the present value of a future cash flow, multiply the cash flow by the appropriate table value, based on the expected interest rate and period.

This table is a critical tool in financial calculations, enabling users to make informed decisions about investments, savings, and loans.

### Present Value of Annuity of $1.00 in Arrears

This table shows the present value of an annuity of $1.00 in arrears, listed over various periods (1 to 40), and at different interest rates (ranging from 2% to 40%). The values represent how much $1 received at the end of each period is worth today, discounted back at these specified rates.

**Columns and Descriptions:**

- **Periods**: Number of payment periods from 1 to 40.
- **Interest Rates (Columns)**: The table includes interest rates of 2%, 4%, 6%, 8%, 10%, 12%, 14%, 16%, 18%, 20%, 22%, 24%, 26%, 28%, 30%, 32%, and 40%.
- **Values**: Each cell shows the present value of an annuity for $1 received at the end of each period, discounted at the column's specified interest rate.

**Usage:**
- This table is valuable in finance for computing the present value of annuity payments, which is essential for investment analysis, retirement planning, and loan amortization.

*Note: “Payments (or receipts) at the end of each period” signifies that the annuity payments are made at the end of each period, a standard practice in financial calculations.*

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