Homecare, a not-for-profit organisation that provides meals to the disadvantaged, estimates that it can save $14,000 a year in cash operating costs for the next 7 years if it buys a special-purpose oven at a cost of $65,000. No terminal disposal value is expected. The required rate of return is 6%. Assume all cash flows occur at year-end except for initial investment amounts.
Required:1. Calculate the following for the special-purpose oven: a, net present value. b, payback period. c, Internal rate of return. d, accrual accounting rate of return based on net initial investment (assume straight-line depreciation).
2. What other factors should Homecare consider in deciding whether to purchase the special-purpose oven?