Chicago Hospital,
a nonprofit organization, estimates that it can save
$33,000
a year in cash operating costs for the next
8
years if it buys a special-purpose eye-testing machine at a cost of
$140,000.
No terminal disposal value is expected.
Chicago Hospital’s
required rate of return is
14%.
Assume all cash flows occur at year-end except for initial investment amounts.
Chicago Hospital
uses straight-line depreciation.
Present Value of $1 table
Present Value of Annuity of $1 table
Future Value of $1 table
Future Value of Annuity of $1 table
Requirement
1. Calculate the following for the special-purpose eye-testing machine:
a. Net present value (NPV) (Use factors to three decimal places, X.XXX, and use a minus sign or parentheses for a negative net present value. Enter the net present value of the investment rounded to the nearest whole dollar.)
a. | Net present value | |
b. | Payback period | |
c. | Internal rate of return | |
d. | Accrual accounting rate of return based on net initial investment | |
e. | Accrual accounting rate of return based on average investment | |
2. |
What other factors should
Chicago Hospital consider in deciding whether to purchase the special-purpose eye-testing machine? |