Question

Saskatoon Hospital, a non-profit organization, estimates that it can save $28,000 a year in cash operating costs for the next ten years if it buys a special-purpose eye-testing machine at a cost of $110,000. No terminal disposal value is expected. Saskatoon Hospital's required rate of return is 14%. Assume all cash flows occur at year-end except for initial investment amounts.
REQUIRED
1. Calculate the following for the special-purpose eye-testing machine:
a. Net present value.
b. Payback period.
c. Internal rate of return.
d. Accrual accounting rate of return based on net initial investment. (Assume straight-line depreciation.)
2. What other factors should Saskatoon Hospital consider in deciding whether to purchase the special-purpose eye-testing machine?


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  • CreatedJuly 31, 2015
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