Capital budgeting with uneven cash flows, no income taxes. S…
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 four years with no terminal disposal value. The plant manager estimates the following savings in cash operating costs: Year Amount 1…….. $10,000 2…….. 8,000 3…….. 6,000 4…….. 5,000 Total…… $29,000 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. REQUIRED Calculate the following for the special-purpose bottling machine: 1. Net present value. 2. Payback period. 3. Internal rate of return.
