Saskatoon Hospital, a non-profit organization, estimates that it can save $28,000 a year in cash operating costs

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. .
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?
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...