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  3. 1. city hospital, a nonprofit organization, estima

1. City Hospital, a nonprofit organization, estimates that it can save $28,000 a year in...

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Accounting

1. City Hospital, 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. A $5,000 disposal value is expected. City Hospitals required rate of return is 12%. Assume all cash flows occur at year-end except for initial investment amounts. City Hospital 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 City Hospital consider in deciding whether to purchase the special- purpose eye-testing machine?

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