Jefferson Labs

JeffersonLabs, a taxpayingentity, estimates that it can save $ 33 comma 000

$33,000 a year in cash operating costs for the next 8

8 years if it buys aspecial-purpose eye-testing machine at a cost of $ 140 comma 000

$140,000. No terminal disposal value is expected. Jefferson Labs'

JeffersonLabs' required rate of return is 14

14%. Assume all cash flows occur atyear-end except for initial investment amounts. Jefferson Labs

JeffersonLabs usesstraight-line depreciation. The income tax rate is 31 %

31% for all transactions that affect income taxes.

1.

Calculate the following for thespecial-purpose eye-testingmachine:

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 thespecial-purpose machine had a $ 13 comma 000

$13,000 terminal disposal value at the end of 8

8 years? Assume depreciation deductions are based on the $ 140 comma 000

$140,000 purchase cost and zero terminal disposal value using thestraight-line method. Answer briefly in words without further calculations.