Capital budgeting methods, no income taxes. City Hospital, a non 1 answer below »
Capital budgeting methods, no income taxes. City Hospital, a non-profit 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. City Hospital’s required rate of return is 14%. Assume all cash flows occur at year-end except for initial investment amounts.
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 (Assume straight-line depreciation.)
2. What other factors should City Hospital consider in deciding whether to purchase the special-purpose eye-testing machine?