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    Capital Budgeting Decisions with uneven cash flows

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    Capital budgeting with uneven cash flows, no income taxes.

    Southern Cola is considering the purchase of a special-purpose bottling ma chine for $23,000, It is expected to have a useful life of four years with a $0 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,

    Compute the following:

    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 of return.)

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    Solution Summary

    The solution calculates Net present value, Payback period, Internal rate of return, Accrual accounting rate of return based on net initial investment.