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City Hospital, a taxpaying entity, estimates that it can save $30,000 a year in cash operating costs for the next 10 years if it buys
City Hospital, a taxpaying entity, estimates that it can save $30,000 a year in cash operating costs for the next 10 years if it buys a special-purpose eye-testing machine at a cost of $135,000. No terminal disposal value is expected. City Hospital's required rate of return is 12%. Assume all cash flows occur at year-end except for initial investment amounts. City Hospital uses straight-line depreciation. The income tax rate is 34% for all transactions that affect income taxes. Read the Requirement 1. Calculate the following for the special-purpose eye-testing machine: a. Net present value (NPR) (Round interim calculations and your final answers to the nearest whole dollar. Use a minus sign or parentheses for a negative net present value.) The net present value is Requirements 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. How would your computations in requirement 1 be affected if the special-purpose machine had a $11,000 terminal disposal value at the end of 10 years? Assume depreciation deductions are based on the $135,000 purchase cost and zero terminal disposal value using the straight-line method. Answer briefly in words without further calculations
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