Reference no: EM132406434

Question

Techno Labs, a taxpaying? entity, estimates that it can save $23,000 a year in cash operating costs for the next 8 years if it buys a? special-purpose eye-testing machine at a cost of $90,000. No terminal disposal value is expected. Techno Labs' Techno Labs' required rate of return is 12?%. Assume all cash flows occur at? year-end except for initial investment amounts. Techno Labs Techno Labs uses? straight-line depreciation. The income tax rate is 28% for all transactions that affect income taxes.

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. How would your computations in requirement 1 be affected if the? special-purpose machine had a $11,000 terminal disposal value at the end of 8 ?years? Assume depreciation deductions are based on the $90,000 purchase cost and zero terminal disposal value using the? straight-line method. Answer briefly in words without further calculations.