Question 3 (20 marks) Queen's Hospital, a non-profit organization, estimates that it can save $250,000 a year in cash operating costs for the next 10 years if it buys an X-Ray testing machine at a cost of $1,000,000 No terminal disposal value is expected. Queen's Hospital's required rate of return is 14%. Assume all cash flows occur at year-end except for initial investment amounts. Queen's Hospital adopts the straight-line depreciation method. Required: 1. Calculate the following for the X-Ray testing machine a. Net present value (3 marks) b. Payback period (2 marks) c. Internal rate of return (3 marks) d. Accrual accounting rate of return based on net initial investment (2 marks) e. Accrual accounting rate of return based on average investment (2 marks) 2. The accountant of the Hospital is wondering whether the savings could reach $250,000 per year, what is the minimum savings in installing the machine? (3 marks) 3. Assuming you have an investment project with a net present value in negative; what factors may change negative NPV investment to positive? (5 marks) The Present Value and Present Value of Annuity Tables: Year 1 2 3 4 5 6 7 8 9 10 14% 0.8772 0.7695 0.6750 0.5921 0.5194 0.4556 0.3996 0.3506 0.3075 0.2697 Present Value Table 20% 22% 0.8333 0.8196 0.6944 0.6719 0.5787 0.5507 0.4823 0.4514 0.4019 0.3700 0.3349 0.3033 0.2791 0.2488 0.2326 0.2038 0.1938 0.1670 0.1615 0.1369 24% 0.8065 0.6504 0.5245 0.4230 0.3411 0.2751 0.2218 0.1789 0.1443 0.1164 Present Value of Annuity Table 14% 20% 22% 24% 0.8772 0.8333 0.8196 0.8065 1.6467 1.5278 1.4915 1.4569 2.3216 2.1065 2.0422 1.9814 2.9137 2.5887 2.4936 2.4044 3.4331 2.9906 2.8636 2.7455 3.8887 3.3255 3.1669 3.0206 4.2883 3.6046 3.4157 3.2424 4.6389 3.8372 3.6195 3.4213 4.9464 4.031 3.7865 3.5656 5.2161 4.1925 3.9234 3.6820