Metro Clinicâ, a nonprofitâ organization, estimates that it can save $30,000 a year in cash operating costs for the next 10 years if it buys aâ special-purpose eye-testing $135,000. No terminal disposal value is expected. Metro Clinics required rate of return is 14â%. Assume all cash flows occur atâ year-end except for initial investment amounts. Metro Clinic Metro Clinic usesâ straight-line depreciation.
a. Net present valueâ (NPV
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
Requirement 2. What other factors should Metro Clinic consider in deciding whether to purchase theâ special-purpose eye-testingâ machine?
A. Quantitative financial aspects.
B. Financingâ factors, such as the availability of cash to purchase the new equipment.
C. Qualitativeâ factors, such as the benefits to its customers of a betterâ eye-testing machine and theâ employee-morale advantages of havingâ up-to-date 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 theâ eye-testing machine meets the organzation goals of the company.
Metro Clinicâ, a nonprofitâ organization, estimates that it can save $30,000 a year in cash operating costs for the next 10 years if it buys aâ special-purpose eye-testing $135,000. No terminal disposal value is expected. Metro Clinics required rate of return is 14â%. Assume all cash flows occur atâ year-end except for initial investment amounts. Metro Clinic Metro Clinic usesâ straight-line depreciation.
a. Net present valueâ (NPV
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
Requirement 2. What other factors should Metro Clinic consider in deciding whether to purchase theâ special-purpose eye-testingâ machine?
A. Quantitative financial aspects.
B. Financingâ factors, such as the availability of cash to purchase the new equipment.
C. Qualitativeâ factors, such as the benefits to its customers of a betterâ eye-testing machine and theâ employee-morale advantages of havingâ up-to-date 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 theâ eye-testing machine meets the organzation goals of the company.
