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

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 Hospital’s 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 specialpurpose eye-testing machine?

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ekkarill92 answered 9 months ago

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