Question 1.

High Point Eyes, a nonprofit organization, estimates that it can save $25,000 a year in cash operating costs for the next 12 years if it buys a special-purpose eye-testing machine at a cost of $120,000. A $5,000 disposal value is expected. High Point Eyes' required rate of return is 10%. Assume all cash flows occur at year-end except for initial investment amounts. High Point Eyes uses straight-line depreciation. The income tax rate is 30% for all transactions that affect income taxes.

Required:

1. Calculate the following for the special-purpose eye-testing machine:

a. Net present value

b. Payback period

c. Return on average investment

2. What other factors should High Point Eyes consider in deciding whether to purchase the special-purpose eye-testing machine?