Lincoln Research, a nonprofit organization, estimates that it can save $ 26,000 a year in cash operating costs for the next 9 years if it buys a special-purpose eye-testing machine at a cost of $ 125,000 . No terminal disposal value is expected. Lincoln Research's required rate of return is 14 %. Assume all cash flows occur at year-end except for initial investment amounts. Lincoln Research uses straight-line depreciation.
| 1. | Calculate the following for the special-purpose eye-testing machine: |
| | a. | Net present value (NPV) (Use factors to three decimal places, X.XXX, and use a minus sign or parentheses for a negative net present value. Enter the net present value of the investment rounded to the nearest whole dollar.) |
| | 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 Lincoln Research sider in deciding whether to purchase the special-purpose eye-testing machine? |
Compound Amount of $1.00 (The Future Value of $1.00) S = P(1 + In this table P $1.00 Periods 2% 4% 6% 8% 10% 12% 14% 22% 26% 28% 1 1020 1.0401.060 1.080 1.100 1.120 1.140 1.160 1.180 1.200 1.220 1.240 1.040 1.082 1.124 1.166 1210 1.2541.3001.3461.3921.4401.4881.5381588 1.638 1690 1.061 1.125 1.191 1260 133114051482156116431.7281.816 1.90720002.09721972.300 262 1.360 1.464 1.574 1.6891.8111.939 4 1.082 1.170 12 2.074 2.215 2.3642.5202.6842856 3.036 51.104 1.217 1.338 1469 1.6111.762 1.925 2.100 2.288 2.488 2.703 2.9323.1763.436 3.713 4.007 1.126 1.265 1.419 1.587 1.772.974 2195 2436 2.7002.986 3.297 3.635 4.002 4.3984827 5.290 10.5417 71.149 1.316 1.504 1.714 1.9492.2112.502 2.826 3.185 3.583 4.023 4.5085.0425.6296.2756.983 8 1.172 1.369 1594 1.8512.1442.4762853 3.278 3.759 4.300 4.908 5.5906.3537.2068.157 9.217 6.1927.3058.59410.086 11.806 13.786 16.060 10 1.219 1.480 1.791 2.159 2.594 3.1063.7074.4115.234 11 1.243 1.539 1.898 2.332 2.853 3.4794.226 5.117 6.176 7430 8.91210.65712.70815.112 17.92221.199 12 1.268 1.601 2.012 2.518 3.138 3.8964.8 13 1.294 1.665 2.133 2.720 3.452 4.363 5.492 6.886 8.599 10.69913.264 16.386 20.17524.759 30.288 36.937 14 1.319 1.732 2.261 2.937 3.7974.8876.261 7.988 10.147 12.83916.182 20.319 25.42131.69139.374 48.757 111.120 14 15 1.346 1.801 2.397 3.172 4.177 5.474 7.138 9.266 11.974 15.407 19.742 25.196 32.030 40.565 51.186 64.359 155.568 15 16 1.373 1.873 2.540 3.426 4.595 6.1308.13710.748 14.129 18.488 24.08631.24340.35851.92366.54284.954 217.79516 17 1.400 1.948 2693 3.700 5.054 6.8669.27612.468 16.67222.186 29.38438.74150.851 66.46186.504112.139 304.91317 18 1.428 2.026 2.854 3.996 5.5607.690 10.57514.463 19.67326.623 35.84948.039 64.072 85.07111245548.024 426.87918 19 1.457 2.107 3.026 4.316 6.116 8.613 12.05616.77723.214 31.94843.73659.56880.731 108.890 146.192195.391597.63019 20 1486 2.191 3.207 4.661 6.727 9.646 13.743 19.461 27.393 38.338 53.358 73.864 101.721 139.380 190.050 257.916 836.68320 21 1.516 2.2793.400 5.034 7400 10.804 15.668 22.57432.324 46.005 65.096 91.592 22 1.546 2.370 3.604 5.437 8.140 12.100 17.861 26.186 38.142 55.206 79.418 113.574 161.492228.360 321.184 449.3931639.89822 23 1.577 2.465 3.820 5.871 8.954 13.552 20.362 30.376 45.008 24 1.608 2.563 4.0496.341 9.850 15.179 23.212 35.236 53.109 79.497 118.205 174.631256.385 374.144 542.801783.023 3214.20024 25 1.641 2.666 4.292 6.848 10.835 17.000 26.46240.87462.669 95.396 144.210 216.542323.045 478.905 705.6411033.590 4499.88025 26 1.673 2.172 4.549 7.396 11.918 19.040 30.167 47.414 13.949 114.475 175.936 268.512407.037 612.998 917.3331364.339 6299.83126 27 1.707 2.883 4.822 7.988 13.110 21.325 34390 55.000 87.260 137.371 214.642 332.955 512.867 784.638 1192.533 1800.927 8819.76427 28 1.741 2.999 5.112 8.627 14.421 23.88439.20463.800 102.967 164.845 261.864 412.864 646.212 1004.336 1550.2932377.224 12347.67028 29 1.776 3.119 5.418 9.317 15.863 26.750 44.693 74.009 121.501 197.814 319.474 511.952 814.228 1285.550 2015.381 3137.935 17286.73729 30 1.811 3.243 5.743 10.063 17.449 29.960 50.950 85.850 143.371 237.376 389.758 634.820 1025.927 1645.505 2619.9964142.075 24201.43230 35 2.000 3.946 7.686 14.785 28.102 52.800 98.100 180.314 327.997 590.668 1053.402 1861.054 3258.135 5653.911 9727860 16599.217 130161.112 35 40 2.208 4.801 10.286 21.725 45.259 93.051 188.884 378.721 750.378 1469.772 2847.038 5455.913 10347.175 19426.689 36118.865 66520.767 700037.69740 40.496 11 5.936 7.2888.91610.87213.215 16.012 19.343 23.298 27.983 128 8.169 178.406 247.065 340.449 1171.356 21 66.247 96.889 140.831 203480 292.300 417.539 593.199 2295.857 23
