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Techno LabsTechno Labs,

a nonprofit organization, estimates that it can save $30,000 a year in cash operating costs for the next 10 years if it buys a special-purpose eye-testing machine at a cost of $135,000.

No terminal disposal value is expected. Techno Labs'Techno Labs' required rate of return is 10%. Assume all cash flows occur at year-end except for initial investment amounts.

Techno Labs uses straight-line depreciation

Requirement 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.)

The net present value is $

.

b. Payback period (Round your answer to two decimal places.)

The payback period is

years.

c. Internal rate of return (Round the rate to two decimal places, X.XX%.)

The internal rate of return (IRR) is

%.

d. Accrual accounting rate of return based on net initial investment (Round interim calculations to the nearest whole dollar. Round the rate to two decimal places, X.XX%.)

The accrual accounting rate of return (AARR) is

% based on net initial investment.

e. Accrual accounting rate of return based on average investment (Round interim calculations to the nearest whole dollar. Round the rate to two decimal places, X.XX%.)

The accrual accounting rate of return (AARR) is

% based on average investment.

Requirement 2. What other factors should

Techno LabsTechno Labs

consider in deciding whether to purchase the special-purpose eye-testing machine?

A.

Qualitative factors, such as the benefits to its customers of a better eye-testing machine and the employee-morale advantages of having up-to-date equipment.

B.

Quantitative financial aspects.

C.

Financing factors, such as the availability of cash to purchase the new equipment.

D.

All of the above.

E.

None of the above. Using all four of the capital budgeting methodologies from requirement 1 will give management sufficient information to determine whether or not an investment in the eye-testing machine meets the organzation goals of the company.