# Techno Labs, a nonprofit organization, estimates that it can save $ 25,000 a year in cash operating costs for the next 8 years if it buys a special- purpose eye- testing machine at a cost of $ 120,000. No terminal

Techno Labs, a nonprofit organization, estimates that it can save $ 25,000 a year in cash operating costs for the next 8 years if it buys a special- purpose eye- testing machine at a cost of $ 120,000. No terminal disposal value is expected. Techno Labs’ required rate of return is 12%. Assume all cash flows occur at year- end except for initial investment amounts. Techno Labs uses straight- line depreciation.

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

e. Accrual accounting rate of return based on average investment

2. What other factors should Techno Labs consider in deciding whether to purchase the special- purpose eye-testing machine?

Net Present Value

What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at... Internal Rate of Return

Internal Rate of Return of IRR is a capital budgeting tool that is used to assess the viability of an investment opportunity. IRR is the true rate of return that a project is capable of generating. It is a metric that tells you about the investment... Payback Period

Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...

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

e. Accrual accounting rate of return based on average investment

2. What other factors should Techno Labs consider in deciding whether to purchase the special- purpose eye-testing machine?

Net Present Value

What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at... Internal Rate of Return

Internal Rate of Return of IRR is a capital budgeting tool that is used to assess the viability of an investment opportunity. IRR is the true rate of return that a project is capable of generating. It is a metric that tells you about the investment... Payback Period

Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...

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