Question

Question Help O Chicago Hospital, a nonprofit organization, estimates that it can save $25,000 a year in cash operating costs for the next 9 years if it buys a special-purpose eye-testing machine at a cost of $100,000. No terminal disposal value is expected. Chicago Hospital's required rate of return is 14%. Assume all cash flows occur at year-end except for initial investment amounts. Chicago Hospital uses straight-line depreciation. Present Value of $1 table Present Value of Annuity of $1 table Future Value of $1 table Future Value of Annuity of $1 table * Requirements - X por parentheses for a negative net present value. Enter the net present value of the investment rounded to the nearest whole dollar.) 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 e. Accrual accounting rate of return based on average investment 2. What other factors should Chicago Hospital consider in deciding whether to purchase the special-purpose eye-testing machine? s to the nearest whole dollar. Round the rate to two decimal places, X.XX%.) Print Done stment. Enter any number in the edit fields and then continue to the next question.

Answer 1

fox В2 1 (a) A D E F Н I 1 1 (a) increased annual contibution margin $25,000 2 2 all the given options in A, B and Care equally important and should be considered while making a final decision present value annuity factor (14%, 9 years) 4.946 $123,650 $100,000 present value of increased contibution margin 4 D. All of the above net initial investment hence, the correct answer is 5 $23,650 net present value 6 7 8 1 (b) $100,000 net initial investment 9 increased annual contibution margin $25,000 10 4.00 years payback period 11 12 1 (c) internal rate of return 20.24% 13 14 1 (d) $25,000 $11,111 $13,889 annual savings in cash operating costs 15 annual depreciation 16 annual net income 17 $100,000 net initial investment 18 accrual accounting rate of return (based on net initial investment) 13.89% 19 20 1 (e) annual savings in cash operating costs annual depreciation $25,000 21 $11,111 22 $13,889 annual net income 23 = $50,000 24 average investment accrual accounting rate of return (based on average investment) 27.78% 25 26

for formulas and calculations, refer to the image below -

fox X 1 (a) B2 В A с D F G Н I J 1 2 1 (a) increased annual contibution margin 25000 2 all the given options in A, B and C are equally =ROUND(-PV(14%,9,1), 3) important and should be considered while making present value annuity factor (14%, 9 years) present value of increased contibution margin 3 EE2*E3 a final decision. 4 100000 D. All of the above. net initial investment hence, the correct answer is 5 net present value E4-E5 6 7 1 (b) net initial investment -E5 increased annual contibution margin -E2 10 -E9/E10 payback period years 11 12 =RATE (9,25000,-100000) 1 (c) internal rate of return 13 14 1 (d) annual savings in cash operating costs -E2 15 -ROUND (100000/9,0) -E15-E16 annual depreciation 16 annual net income 17 100000 net initial investment 18 accrual accounting rate of return (based on net initial investment)E17/E18 19 20 1 (e) annual savings in cash operating costs -E2 21 =ROUND(100000/9,0) annual depreciation 22 annual net income =E21-E22 23 = 100000/2 24 average investment accrual accounting rate of return (based on average investment)E23/E24 25 26

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