Chicago 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: (Click the icon to view the savings in cash operating costs.) Chicago 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. 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 Calculate the following for the special purpose bottling machine: Year Amount 1. Net present value Year 1 $ 15,000 2. 3. Payback period Discounted payback period Year 2 11,000 4. Internal rate of return (using the interpolation method) Year 3 10,000 5. 8,000 Year 4 $ 44,000 Total 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.) Print Done Print Done
Chicago 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: (Click the icon to view the savings in cash operating costs.) Chicago 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. 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 Calculate the following for the special purpose bottling machine: Year Amount 1. Net present value Year 1 $ 15,000 2. 3. Payback period Discounted payback period Year 2 11,000 4. Internal rate of return (using the interpolation method) Year 3 10,000 5. 8,000 Year 4 $ 44,000 Total 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.) Print Done Print Done
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Chicago 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:
(Click the icon to view the savings in cash operating costs.)
Chicago 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.
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
Calculate the following for the special purpose bottling machine:
Year
Amount
1.
Net present value
Year 1 $
15,000
2.
3.
Payback period
Discounted payback period
Year 2
11,000
4.
Internal rate of return (using the interpolation method)
Year 3
10,000
5.
8,000
Year 4
$
44,000
Total
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.)
Print
Done
Print
Done
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