Capital budgeting methods, no income taxes. City Hospital, a non-profit organization, estimates that it can save $28,000 a year in cash operating costs for the next 10 years if it buys a special-purpose eye- testing machine at a cost of $110,000. No terminal disposal value is expected. City Hospital’s required rate of return is 14%. Assume all cash flows occur at year-end except for initial investment amounts.

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 City Hospital consider in deciding whether to purchase the special-purpose eye-testing machine?