Should We Purchase That New Copier?
Campus Print Shop is thinking of purchasing a new, modern
copier that automatically collates pages. The machine would
cost $22,000 cash. A service contract on the machine, considered
a must because of its complexity, would be an additional
$200 per month. The machine is expected to last eight
years and have a resale value of $4,000. By purchasing the new
machine, Campus would save $450 per month in labor costs
and $100 per month in materials costs due to increased efficiency.
Other operating costs are expected to remain the same.
The old copier would be sold for its scrap value of $1,000.
Campus requires a return of 14% on its capital investments.
1. As a consultant to Campus, compute:
a. The payback period.
b. The unadjusted rate of return.
c. The net present value.
d. The internal rate of return.
2. On the basis of these computations and any qualitative
considerations, would you recommend that Campus purchase
the new copier?
1 answer