Metro Clinic, a nonprofit organization, estimates that it can save $28,000 a year in cash operating costs for the next 10 years if it buys
Metro Clinic, a nonprofit 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. Metro Clinic's required rate of return is 12%.
Assume all cash flows occur at year-end except for initial investment amounts. Metro Clinic uses straight-line depreciation.
| 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. | What other factors should Metro Clinic consider in deciding whether to purchase the special-purpose eye-testing machine? |
Compound Amount of $1.00 (The Future Value of $1.00) S Pl 1 +. In this table P-$1.00 22% 11020 10401060 .080 1.100 1.120 1.140 1160 1.180 1.200 .220 1.240 1.260 128013001.320 2 1.040 1082 .124 1.166 1.210 1254 1.300 1346 1392 440 1488 153 1588 1638 1690 1742 3 106 25 19 1260 1331 1405 1482 1561 1643728 1.816 907 2000 2.097 2.197 2.300 4 1.082 1.170 1.262 1.360 1.464 1.5741.689 18111.939 2.074 2.2152364 2520 5 1.104 12171338 1469 1611 1.762 1925 2.100 2.288 2488 2.703 2932 3.176 3436 3713 4.007 6 1126 1265 1.419 1587 1772 1974 2.195 2436 2.700 2986 3.297 3635 4.002 4398 4827 5290 7 1.149 3161504 1714 1949 2.211 2502 2826 3.185 3.583 4.023 4.508 5.042 5.629 6275 6.983 10.541 7 8 1.172 369 1594 1851 2.144 2.476 2853 3278 3759 4300 4.908 5.590 635 7206 8157 9.217 10 1.219 1.480 1.791 2.159 2.594 3.1063.707 4411 5.234 6.192 7.305 8.594 10.08611.80613.786 16.060 28.92510 11 1.243 1539 1.898 2.332 85 3.4794.226 5.1176.176 7.430 8.912 10.657 12.708 151792221.199 40.496 12 1.268 1.60 2012 2.518 3.138 3.896 4818 5.936 7.288 8.916 10.872 13.215 16.012 19.343 23298 27.983 13 1.294 1.665 2.133 2.720 3.452 4.363 5.492 6.886 8.599 10.699 13.264 16.386 20.17524.759 30288 36.93779.371 14 1.319 1.732 2.261 2937 3.797 4887 6.261 7.988 10.147 12839 16.182 20.319 25.42131.691 39.374 48.75720 14 15 1.346 1.801 2397 3.172 4.177 5.474 7.138 9.266 11974 15.40719.74225.196 32.030 40.565 51.186 64.359155.56815 16 1.373 .873 2540 3.426 4.595 6.130 8.137 10.748 14.129 18.488 24.086 31243 40.358 51923 66.542 84.954 217.795 16 17 1.400 1.948 2.693 3.700 5054 6.866 9.276 12.468 16.672 22.186 29.384 38.74150.8566.461 86.504 112.139 30491317 18 1428 2.026 2854 3.996 5.560 7690 10.575 14.463 19.673 26.623 35849 48.039 64.072 85.071 112455 148.024 426879 18 19 1457 2.107 3.026 4.316 6.116 8.613 12056 16.777 23.214 31.948 43.736 59.568 80.731 108.890 146.192 195.391 597.630 19 20 1.486 2.191 3207 4661 6.727 9.646 13743 19.461 27393 38.338 53.358 73864 101.721 139.380 190.050 257916 836.683 20 21 1.516 2.279 3.400 5.034 7.400 10.804 15.668 22.574 3232446.005 65.096 91.592 128.169 178.406 247.065 340.449 117135621 22 1.546 2.370 3604 5.437 8.140 12.100 17861 26.186 38.142 55.206 79.418 113574 161.492 228.360 321.184 449.393 1639.898 22 23 1.577 2.465 3820 5.871 8.954 13552 20362 30.376 45.008 66.247 96.889 140.831 203.480 292.300 417.539 593.199 2295.857 23 24 1.608 2563 4.049 6.341 9.850 15.179 23212 35236 53.109 79.497 118.205 174631 256.385 374.144 542801 783.023 3214.200 24 25 1.641 2.666 4.292 6.848 10.835 17.000 26.462 40.874 62669 95.396 144.210 216.542 323.045 478.905 705.641 1033.590 4499.880 25 26 1.673 2.772 4549 7.396 18 19.040 30.167 47414 73.949 114.475 175.936 268512 407.037 612.998 917333 1364.339 6299.831 26 27 1.707 2.883 4.822 7.988 13.110 21.325 34.390 55.000 87.260 137.371 214.642 332955 512.867 784.638 1192533 1800.9278819.764 27 28 1.741 2999 51 8.627 14.421 23.884 39.204 63.800 102.967 164.845 261.864 412864 646.212 1004.336 1550.293 2377.224 12347.670 28 29 1.776 3.119 5418 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 17286.737 29 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 2619.996 4142.075 24201.432 30 35 2.000 3946 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 9305 188884 378.721 750.378 1469.772 2847.038 5455.913 10347.175 19426.689 36118865 66520.767 700037 697 40
